OCR Must Remain On Hold

OCR Must Remain On Hold

Worsening retail sales figures and a continuation of poor economic conditions around the world may mean that the Reserve Bank should give a bold ‘lower for longer’ signal say the New Zealand Manufacturers and Exporters Association (NZMEA). Retail sales down 0.6 percent in February, weak labour statistics and a drought affecting farm production will reduce inflationary pressures this year.

NZMEA Chief Executive John Walley says, “Dropping retail sales and poor returns from the primary industries despite the fiscal stimulus package mean that the stimulus provided by the Official Cash Rate at 2.5 percent must remain. High unemployment and weak housing sales are further indications of a very slow recovery.”

“The Fed and the Bank of England will keep rates low and further quantitative easing is not off the agenda. New Zealand must follow this lead.”

The International Monetary Fund (IMF) has come out recently expressing concern that the quantitative easing practised in the United States and Europe could lead to “official reserve accumulation in economies with high interest rates”, and that, “sudden inflow surges may lead to inflation and asset price bubbles.”

“Put another way this will mean higher exchange rates for New Zealand and another good kick for our exporters,” says Mr Walley. “Higher rates than necessary will stoke inflationary pressure as speculators drive up the transient value of the New Zealand dollar. The IMF has recommended reducing interest rates where the economic outlook permits; the Reserve Bank must heed that message.”

ENDS

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