Reserve Bank hike unpopular

By Phil Boeyen, ShareChat Business News Editor

Wednesday 20th March 2002

There's plenty of grumbling over the Reserve Bank's decision to raise interest rates with one business group claiming that New Zealand was the last country to bring rates down but the first to put them up.

Early Wednesday the Reserve Bank governor Don Brash announced a 25 point rise in the official cash rate from 4.75% to 5% on the back of a strong domestic economy.

However the Employers and Manufacturers Association (Northern) believes the bank has moved too quickly.

"Today's interest rate increase is too soon with economic growth running at less than 2% per annum and inflation lower than many of our trading competitor countries," says chief executive Alasdair Thompson.

"Dr Brash has reverted to the form of 1997/98 when the Reserve Bank stomped all over growth. In this cycle Dr Brash was again last to bring interest rates down, and first to put them up."

Mr Thompson says the association takes issue with Dr Brash's claims that the New Zealand economy is running close to capacity.

"The capacity utilisation average of our manufacturers this year has been only 71%, lower than it was for most of last year."

The Auckland Chamber of Commerce claims the interest rate hike "once again threatens prospects of badly needed growth getting traction."

Chief executive, Michael Barnett, says New Zealand is a long way from achieving the kind of sustained growth that commentators say is needed to lift living standards closer to key trading partners and countries offering higher pay for key skills.

The Council of Trade Unions has also expressed disappointment with the rate jump and says despite recent strong domestic indicators "the medium-term outlook for economic growth is not nearly so positive" with falling export returns and a higher dollar.

"In the period before the next OCR review it will be important for the Reserve Bank to talk closely with the productive sector including unions on the impact on investment, growth and jobs of interest rate rises," the CTU says.

A number of economists said they were surprised at the increase in the OCR with Deutsche Bank claiming that the Reserve Bank's stance "may be interpreted as unnecessarily aggressive".

"There is the risk of a negative reaction by international investors, particularly given the Fed statement this morning that reflected no more than a neutral bias."

Earlier today the US central bank said it would hold interest rates at 1.75% but noted that the US economy "is expanding at a significant pace".

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