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Alarm bells go off with further US interest cuts

Media release Wednesday, November 7th, 2001

Alarm bells go off with further US interest rate cut

The half a per cent cut in interest rates announced today by the US Federal Reserve will set alarm bells ringing in New Zealand, the Employers & Manufacturers Associations (Northern) says. US rates are the lowest they've been for over 40 years.

"The latest cut in US interest rates to two per cent demands an urgent response from our Reserve Bank," said Alasdair Thompson, EMA's chief executive.

"The cut comes on top of US tax cuts and rebates, with many commentators predicting further reductions to come.

"Dr Brash should cut interest rates locally now in the expectation of a slowdown early next year. The Reserve Bank should ease downwards toward Australia's unchanged rate of 4.25 per cent.

"Our economy has been 'favourably out of sync' with the rest of the world til recently but this is rapidly ceasing to be the case.

"The slump in business confidence in the latest National Bank's survey was polled before the recent Government legislative changes announced a range of new compliance costs soon to hit business - confidence and investment will decline further.

"An important signal last week came with the news that US consumption of dairy products had dropped 40 per cent since September. Its certain world prices for our agricultural commodities have reached their plateau in this cycle.

"Government must act to bolster business confidence, and we expect the Reserve Bank to cut interest rates by half a per cent imminently."

Comments: Alasdair Thompson tel 09 367 0911 (b)

09 303 3951 (h)

025 982 024

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