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OCR increase a token gesture

Thursday 8th March 2007

OCR increase a token gesture

"Today's announcement of a 0.25% increase in the OCR by Reserve Bank Governor Alan Bollard amounts to nothing more than a token gesture by someone who appears not to fully understand debt-based financial systems" said Stephnie de Ruyter, Leader of DSC.

"Even from an orthodox economic perspective, the crude blunt instrument of tinkering with the OCR doesn't work. Raising the OCR has repeatedly failed to dampen down the residential mortgage market which remains buoyant on the back of strong consumer demand, the banking sector's aggressive mortgage lending strategies, and the unfettered purchase of New Zealand property by overseas investors.

"Total bank mortgage lending is very high, about 82% of GDP. This amounts to about $130 billion, some $30 billion more than in 2004, despite OCR increases during that time.

"Ultimately, rising property prices have little to do with interest rates. Only 15% of residential mortgages have floating interest rates, leaving 85% unaffected" Ms de Ruyter said.

She noted that changes to the OCR did have serious implications for other sectors of the economy.

"Surely it is unacceptable that people who openly admit they don't know what causes inflation are responsible for trying to control it. It's time we had people in government who understand how the financial system actually works" Ms de Ruyter concluded.

ENDS

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