A delay in lifting the official cash rate will help
manufacturers by keeping the dollar lower. Photo by ODT.
The Reserve Bank is being urged to take a wider view of
the economy as it prepares for its official cash rate decision
The Council of Trade Unions is urging the central bank to
delay lifting the cash rate to 3.5%, saying it will slow
investment by many firms.
CTU economist Bill Rosenberg said yesterday the Reserve Bank
needed wider objectives so it took employment into account in
its policies, as happened in Australia.
The Reserve Bank of Australia says its ''duty is to
contribute to the stability of the currency, full employment
and economic prosperity and welfare of the Australian
''The Reserve Bank needs to broaden the policies it uses so
it is less reliant on interest rates which affect the
exchange rate and investment.''
It could make more use of capital requirements for banks and
other lenders, targeting particular types of lending, he
It could also directly regulate their use of overseas
funding, which drove the exchange rate up as overseas
investors chased higher interest rates available in New
That could include a financial transactions tax on coming
Alongside those capital management policy tools, some direct
participation in the foreign exchange market might have some
effect, Mr Rosenberg said.
''Another rise in interest rates will raise the dollar
further, striking another blow at high-value manufacturing
industries who are exporting or competing with imports.''
Firms laying off staff said they were not seeing a
''rock-star economy'', he said.
Harbour Asset Management adviser Christian Hawkesby believes
the OCR decision was now a 50-50 call and the Reserve Bank
would be justified if it decided to pause and take stock.
Most observers were still forecasting the Reserve Bank to
lift the OCR 0.25% tomorrow but pause until either December
or January before again increasing interest rates.
Mr Hawkesby said up until recently, things had been running
smoothly for the Reserve Bank.
In March, the bank began a well-signalled hiking cycle,
making a convincing case its actions were designed to ensure
a sustainable economic expansion and keep future inflation
However, the Reserve Bank was always careful to emphasise all
future decisions were contingent on how the economy was
''Put simply, the strongest reason to hike is to deliver on
market expectations in an environment where the economy is
still doing well.
"The strongest reason to delay is to acknowledge the facts
have changed and the urgency to lift rates in the first half
of 2014 has abated somewhat.
"We think it's a genuine 50-50 call,'' Mr Hawkesby said.
Faced with the uncertainty, the bank could justifiably wait
until it undertook a full economic forecast in September.
The most important part of the Reserve Bank's decision
tomorrow would be the signal it would provide on future rate
hikes, he said.
The New Zealand Institute of Economic Research's Monetary
Policy Shadow Board recommended the Reserve Bank lift the
cash rate tomorrow, but with caution.
Support within the Shadow Board for an interest rate hike was
mixed but a hike just received more support than leaving
rates on hold.
''The Reserve Bank is in a tight spot and needs to be
careful,'' NZIER principal economist Kirdan Lees said