CTU MEDIA RELEASE

11 September 2008

Half a percent cut the right decision

The Council of Trade Unions has supported the 0.5 percent cut in the official cash rate announced today.

“Although trading banks are arguing the offshore cost of borrowing restricts their ability to pass on a rate cut which they had already factored in, the announcement of a half percent cut is higher than what most expected,” CTU Economist Peter Conway said. “This means there will be pressure on the banks to respond.”

“Wages as measured by the Labour Cost Index rose by 3.5 percent in the June 2008 year, consumer prices were up by 4 percent and Treasury say labour productivity for the March year rose by 3.1 percent. This shows that it is not wage pressures driving inflation compared with food prices for example.”

“The economy is in a shallow recession and a neutral cash rate of 6 percent is where we need to be. Getting to that level in bigger steps than anticipated is a welcome sign,” Peter Conway said.

ENDS

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