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Brash dumps cold water on economy

By Nick Stride

Friday 19th May 2000

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Reserve Bank governor Don Brash faced his harshest censure this week for strangling the economy as he lifted interest rates amid multiple signs the economy is faltering.

The criticism he copped from government politicians is becoming routine but this time economists joined in.

The bank raised the official cash rate from 6% to 6.5% despite surveys showing business confidence was falling. Residential real estate sales have also plunged.

Meanwhile, the New Zealand dollar hit a 15-year low, a record for which the governor shared the blame with another doctor, treasurer Michael Cullen.

In an unusual move for a treasurer, Dr Cullen was quoted apparently talking the economy down, although he later denied it.

While local observers were making bullish predictions, he said, the foreign analysts he talked to were picking the opposite. His comments had an immediate effect on the exchange rate.

Later in the week he admitted growth had been low or even negative in the March quarter but was expected to pick up.

Dr Brash came under fire on a similar front. National Bank economist Brendan O'Donovan said raising interest rates implied weaker growth in the future and was a negative for the currency.

The joker in the pack, both for Dr Brash and for the government as it prepares its first budget, is consumer confidence.

Petrol prices rose again, floating mortgage rates are on the rise and the country's half a million smokers are choking on a $1-a-pack-plus lift in cigarette prices.

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