Interest Rates Hike Talk Baseless

November 27th, 2000

There are no sound reasons within a six month horizon why interest rates should go up as some commentators are suggesting, says the Employers & Manufacturers Association (Northern).

"Talk of impending interest rate hikes are ill founded and border on scare mongering," said Bruce Goldsworthy, Director of EMA's Manufacturers Division.

"World prices for our agricultural commodities are high at this point in the cycle, as is the oil price, but the inflation they are causing does not have to translate into higher interest rates as it won't continue in the longer term.

"Reserve Bank Governor Don Brash made this much very clear when he stated higher interest rates would be considered only if this inflation was fed through into pay rises.

"There is no evidence overall that this is occurring.

"Our information is that pay rounds are being settled at around two per cent per annum. Only public sector groups in health and education are making higher pay demands.

"Otherwise New Zealanders are showing remarkable restraint by forgoing short term gains for longer term opportunities.

"Other anti inflation factors are also coming into play. These include:
* if trading banks forecasts prove correct and the exchange rate rises over the next two quarters, the price of imports will lessen.
* retail stocks are 9.3 per cent higher in September than last year indicating consumer demand is already soft.
* though our producer's margins are being squeezed, they have absorbed some of these extra costs, which reflects the price competition prevalent on the domestic market.

"With these factors in mind we can only surmise why the trading banks are seeking to talk up interest rates."

Comments: Bruce Goldsworthy tel 09 367 0948 (bus) 09 522 2723 (hme)

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