A Bridge too far...
Canterbury Manufacturers’ Association (CMA) Media
24 July 2007.
A Bridge too far….
The Canterbury Manufacturers’ Association (CMA) is warning that the NZ Dollar will continue its upward momentum having broken through the USD.80 threshold and is calling on the Reserve Bank not to hike the OCR in this week’s monetary statement.
“Six weeks ago we called for an increase in the hope that things would rapidly come to a head and the political need for change would crystallise. Unfortunately, that never happened, but the NZD is now over USD.80c and if that is not enough of a disaster for immediate action, what is?” says Chief Executive John Walley.
“A hike in the OCR on Thursday is further confirmation that current monetary policy is in meltdown – right now a failed experiment. Although medium range forecasts for inflation continue to look bad, forecasts need to be discounted against the reality of what is happening at present. Therefore, our message at this time is to hold interest rates at current levels and hopefully our exporters will gain some respite from the strong dollar”.
“Although most exporters would welcome a cut in the OCR of 3 percent, such a move is a bridge too far for the Reserve Bank. Therefore, there is no reason to expect that the NZD will reverse its current upward course on the back of the interest rate spreads that provide the money to drive house prices and fuel inflation, causing monetary policy to further drive interest rate spreads. All the while the Government remains on the sidelines pushing the same old buttons that have long since failed to work”.
“The correction in the exchange rates needs to happen sooner rather than later, before New Zealand loses more exporting activity and capability and if that means sharing the exporters pain amongst the speculators, Japanese housewives and Belgian dentists, then that is what needs to happen”, says Mr. Walley.
“The ends of killing domestic inflation need revision if it means killing the export sector. Those who argue that exporters can live with the dollar at these levels, or can plan around it, don’t fully understand exporting, have their hands tied and cannot say otherwise and they certainly do not live in world as the people I talk to”.