Lower interest rates expected

Lower interest rates expected

Exporters expect the Reserve Bank to lower the Official Cash Rate (OCR) by at least 0.25 per cent on January 23rd to avert the increasing likelihood of monetary volatility longer term and lower economic growth, says Alasdair Thompson, chief executive of the Employers & Manufacturers Association (Northern).

"The continuing rise of the NZ dollar against the Australian and US currencies is the single biggest factor threatening to stall our modest level of economic growth," Mr Thompson said.

"The cross rate with the Australian currency at 93 cents is punishing trans Tasman exports while the predictions for the US cross rate to go as high as 60 cents would see exporters lose confidence and stop new market development.

"Though the high NZ dollar should mean imports become cheaper, lower prices have proved notoriously slow to reach consumers and impact favourably through the Consumer Price Index.

"Everyday prices for staple items such as dairy products and petrol demonstrate the point.

"High interest rates here - for instance our OCR is 5.75 per cent while the US rate is 1.25 per cent - provides a powerful incentive for US fund managers to stash money here for short term gains. The practice does New Zealand no good.

"If the NZ dollar is allowed to strengthen too far and overshoot our economy's longer term real performance, a more sudden adjustment will need to be made later, with consequent harmful volatility."

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