OCR cut and macro prudential tools needed

OCR cut and macro prudential tools needed – 26 July

An Official Cash Rate (OCR) cut to help exporters, and explicit and greater use of macro prudential tools to prevent another property bubble are needed say the New Zealand Manufacturers and Exporters Association (NZMEA). The Reserve Bank left the OCR on hold at 2.5 percent this morning.

NZMEA Chief Executive John Walley says, “An interest rate cut is needed to relieve exchange rate pressure on the export sector. Prudential requirements of higher capital reserves for asset backed lending are needed to offset the impact of lower interest rates on asset markets.”

“History has shown we cannot deal with both issues using only one tool - interest rates.”
“The trade deficit in the June quarter demonstrates we cannot afford to continue with this policy.”

“The Government has talked a lot about the stagnation of the tradable sector in the graph above. Something must be done to deal with an overvalued exchange rate to have any hope of an export led recovery and reverse this situation.”
“In the end some action must follow the talk. If we don’t change anything we can expect the tradable sector flat line to continue or get worse.”

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