Pressure on for rate cut

By Phil Boeyen, ShareChat Business News Editor

Tuesday 3rd July 2001

Some business groups are calling for another interest rate cut despite economists' consensus that the OCR will remain the same.

Reserve Bank Governor Don Brash is due to announce any change to the rate on Wednesday, and both the Employers & Manufacturers Association (Northern) and Business NZ claim the rate should drop.

Business NZ boss, Simon Carlaw, says if the Reserve Bank cuts the rate by a quarter or half percent it would help companies reduce costs, help business confidence and help to increase investment.

"The Reserve Bank may be concerned about the inflationary impact of the weak dollar and the impact of any future wage increases, given our tight labour market.

"But the domestic market has been declining for the last two quarters, and while export growth has been good, it hasn't been enough to offset the fall in domestic growth.

Mr Carlaw says a cut in interest rates now is unlikely to be inflationary.

Employers & Manufacturers chief executive, Alasdair Thompson, believes agricultural export growth will not make up for shrinking demand on the local market.

"Instead of export led growth, the zero GDP figure for the March quarter out last week showed the economy is stagnating. Manufacturing sales on the domestic market, excluding primary product processing, were 1.5 per cent lower compared to the same quarter a year earlier.

"Dr Brash should let interest rates fall by 0.5 per cent if he is to follow his express wish of letting consumer demand expand or shrink at the same pace as change in economic activity.

Mr Thompson says falling demand on the domestic market is due to higher import prices, which has shifted consumers discretionary spend away from home related durables.

"This has resulted in steep falls in many associated industries. For example, for the year to March, manufacturers sales of furniture on the local market were down 21% on a year ago, non-metallic minerals (cement) was 14% lower, timber production was down 14%, and textiles down 34%."

Despite the pleas it remains an outside bet that Mr Brash will drop rates.

Last week the US central bank, the Federal Reserve, dropped rates by a quarter-percent rather than the half-percent the market had been predicting and this - along with steady consumer confidence and the likelihood of a future trade surplus - means Mr Brash will more than likely err on the side of caution.

Comments from our readers

No comments yet