CTU media release

The Reserve Bank does not need to raise the Official Cash Rate (OCR) on Thursday, says the CTU. It is still higher than many other OECD countries and its low level compared to Australia is an advantage worth maintaining while we can.

“There is a risk that a raised OCR will drive up both the exchange rate and rates for business lending, at a time when new investment is one of the weakest links in an economic recovery,” said Bill Rosenberg, CTU Economist and Policy Director. The State of Manufacturing survey results released by Statistics New Zealand today confirm that while it is showing some hopeful signs, manufacturing is still struggling. It does not need higher interest rates.

“While the Treasury forecast of a CPI increase at 5.9 percent in the year to March 2011 is a big worry for workers still feeling the effects of lack of jobs, shortened work hours and pay falling behind inflation, it is largely driven by one-off government actions including Emissions Trading, higher ACC levies, tobacco taxes and the GST increase. In the light of continued cautious consumer behaviour and the risk of continued international instability, the Reserve Bank can look through the March peak in inflation and resist an increase in interest rates.”

“Fixed term mortgage rates have risen despite the stability in the OCR, helping to keep a lid on house prices. That has been assisted by the changes in property taxation announced in the Budget, though we hope that the timidity in those actions does not lead the Reserve Bank to raise interest rates on account of the housing market.”

“There are policies other than raising interest rates it could use to control lending for housing, and it should consider using those before raising the OCR. These could include tightening conditions on loans and bank capital requirements.”

“A further rise in housing costs would hit many families hard at a time of other cost rises.”

Thanks to Rodrigo at http://www.rodrigoorrantia.com for the image