Cut OCR to match northern economies

Cut OCR to match northern economies – 2 December

The New Zealand Manufacturers and Exporters Association (NZMEA) is advocating an Official Cash Rate (OCR) cut next week in response to the problems in Europe and the USA. A cut would help to take some pressure off the currency in the short-term and add some kick to any OCR rises later on.

NZMEA Chief Executive John Walley says, “It is naïve to think that we will be insulated from the problems in Europe. While only around ten percent of our exports are sold there the impact of debt problems there will make it more difficult for New Zealand to borrow offshore.”

“The US Federal Reserve, Bank of Canada, Bank of England, Bank of Japan, European Central Bank and Swiss National Bank have agreed to lower the interest rate on US dollar liquidity swap lines by 50 basis points. Clearly other central banks are taking concerns in Europe seriously.”

“The terms of trade decline reported by Statistics New Zealand yesterday demonstrates the urgency of acting to help exporters. The more we earn offshore the better the position of NZ Inc if problems do strike. An OCR reduction would help with this.”

“A cut in the OCR now would also be likely to keep more mortgage holders on floating interest rates making OCR rises in a year or two more effective at restraining non-traded inflation.”

“We continue to promote a Reserve Bank Act that targets non-traded inflation rather than headline inflation, but an OCR cut, in line with what our trading partners are doing, would help keep pressure off the currency in the short-term.”

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