Reserve Bank - Economy On A Treadmill!!

19 April 2000

Media Release
RESERVE BANK - ECONOMY ON A TREADMILL!!

Today's Reserve Bank decision to force up interest rates still further will do nothing for growth and business confidence, said Michael Barnett, Chief Executive of the Auckland Chamber of Commerce.

"It is becoming a bad habit," he said. "Each time the Reserve Bank forces up interest rates, the cost of business rises, and prices are forced up a notch which marginally fuels inflation and in turn forces the Reserve Bank to force up interest rates a further notch...."

Making matters worse in this month's intervention by the Reserve Bank is that most of the so-called inflation bubble is imported - the rise in the price of petrol - or seasonal; eg, high tomato prices have been cited.

It is stupid to lock in high interest rates on such factors. Firstly, the price of petrol is now coming down! So why doesn't the Reserve Bank take this into account?

Mr Barnett reminded politicians and Reserve Bank Governor Dr Brash that the Bank's actions today will simply punish ordinary punters - and small-medium business trying to make a go of things! And for what reason?

The best that they can say is to keep inflation in check!! But it is already in check. Even with the latest CPI nudge of 0.7%, the annual rate taking account of the last four quarters is just 1.5% - that is just halfway towards the Reserve Bank’s threshold of 3%.

The Reserve Bank's job is to keep inflation below 3% - not to keep it below 1.5%.

For more information contact: Michael Barnett, Ph: (09) 309-6100 or Mob: 021 631 150

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