Call for governor to cut cash rate, fight for jobs

Russel Norman
Russel Norman
Calls yesterday by the Green Party for Reserve Bank governor Graeme Wheeler to cut the official cash rate from the current 2.5% to protect New Zealand jobs are not likely to be heeded.

Green Party co-leader Russel Norman said yesterday that with inflation running below expectations and the New Zealand dollar trading at near record levels, Mr Wheeler should act to protect jobs in the export and manufacturing sectors by cutting the OCR.

''The governor cannot continue to sit on his hands while the runaway dollar leads to job losses and reduces the competitiveness of our export sector.

''A lower OCR is likely to take pressure off our overvalued exchange rate, helping exporters and manufacturers who compete with imports.''

A decision to leave the OCR unchanged today was a conscious decision that would wreck a vital part of the New Zealand economy, Dr Norman said. ''It's time for Graeme Wheeler to start fighting for New Zealand's productive economy,'' he said.

BNZ senior economist Craig Ebert said there were some broad factors counselling a softer OCR policy but he still expected Mr Wheeler to ''play things down the middle'' and keep the OCR at 2.5%.

Among the signs that were pointing to a softer policy were low inflation and the high New Zealand dollar.

Annual inflation was likely to remain subdued over the first half of this year, promising to further dampen inflation expectations. And as it stood, the New Zealand trade-weighted index - the basket of currencies of New Zealand's trading partners - was about 3% higher than the December Monetary Policy Statement assumed for the first quarter, he said.

Rural production concerns were starting to arise for some North Island areas, given the recent hot and dry weather.

''We could feel all the more of a drag considering the superb year-to-June growing season.''

There were also signs of a cooling in the Australian economy, Mr Ebert said.

But there were factors pointing for less OCR stimulus, including the strengthening of the New Zealand growth indicators. Some of those suggested economic growth (GDP) of 4% this year, well above current growth. There was accumulating evidence of a rebound in construction.

''While this is, understandably, centred on the Canterbury rebuild, there are signs it is drawing on resources from other parts of the country.''

Other factors included a housing market heating up, a pick-up in credit and immigration turning positive.

In theory, there were still big things to keep the Reserve Bank cautious. But in practice, there were emerging trends to broach the subject of a higher New Zealand OCR.

''We don't envy the Reserve Bank's task in weighing it all up.''

 

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