New Zealand: Bank pressed to delay interest rate rise

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New Zealand: Bank pressed to delay interest rate rise

by Colin Espiner

The Reserve Bank is coming under pressure to delay a further rise in interest rates today after turmoil on world sharemarkets and another drop in business confidence.

Exporters and the Real Estate Institute yesterday joined Acting Prime Minister Jim Anderton's call for Governor Don Brash to hold off this morning's expected announcement of a 0.25 per cent rise in the official cost of borrowing money.

They fear the predicted rise in the Official Cash Rate to 6 per cent today in an attempt to dampen inflationary pressures will push up home mortgage rates again, cut business profits and investment in the economy, and lead to a rise in the dollar.

Economists believe Dr Brash is still likely to go ahead with the interest rate rise.

While stopping short of telling Dr Brash how to do his job, Mr Anderton, a previously strident critic of the Reserve Bank's focus on inflation, reminded the Governor that the bank's policy targets had changed with the new Government.

"I am sure the Governor will bear in mind the changes as he works through the complex issues in front of him," Mr Anderton said. "I am confident that wisdom will prevail."

Sharemarkets rallied yesterday after their earlier plunges, with New Zealand's market reclaiming about a quarter of the nearly 5 per cent it lost earlier in the week. Mr Anderton said it was likely the share price fall would mean lower growth rates, while the the Consumer Price Index was predicted to remain within the 0-3 per cent range.

Releasing a survey showing business confidence has fallen sharply in the first quarter of this year, New Zealand Institute of Economic Research director Alex Sundakov said Dr Brash had a very difficult call to make today.

Although the economy was continuing to grow strongly, employers were uneasy about rising costs and the potential for industrial strife this year. Dr Brash had to guess the fallout from the sharemarket plunge, which could make raising the OCR to head off inflation unnecessary, Mr Sundakov said.

NZIER's survey found just 3 per cent of businesses surveyed expected the general business situation to improve over the next six months, compared to 21 per cent in the previous survey. Wholesalers and retailers were the most optimistic, while service sector firms and builders were the most pessimistic.

Real Estate Institute president Max Oliver said raising the OCR would be a bad move and would further depress an already vulnerable property market.

He said banks appeared to be pushing for the increase as an excuse to further raise mortgage rates when it was not justified. Floating rates have so far risen 0.5 per cent in the last month to between 7.8 and 8.1 per cent.

Canterbury Manufacturers' Association chief executive John Walley said a rise in the OCR would give employers "another reason to be reticent".

http://www.press.co.nz/2000/16/000419n00.htm

-- Carl Jenkins (Somewherepress@aol.com), April 19, 2000


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