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BERL director Kel Sanderson has suggested ongoing interest rate increases could "napalm" New Zealand's economic recovery which he thinks is still at a green shoots level.
Sanderson was blunt in his criticism of the Reserve Bank (RBNZ) decision's yesterday's to raise the Official Cash Rate by 25 basis points to 2.75% when he appeared on NZI Business this morning.
"This will drive the dollar up and really hit our exporters. Just when the economy is really starting to get going...yesterday I was thinking (a rise) might cause some of these green shoots to be plucked before they flower, now I think this full (forecast) increase up to 6% is more likely to be napalm wiping out the crop."
Economic forecaster Business and Economic Research Limited (BERL) says the RBNZ's forecasted series of on-going rate increases, which governor Dr Alan Bollard signalled could reach 6% by the middle of 2012, are too high for the economy.
"It's a pretty heavy hit...and Alan Bollard is saying its just in case, it's not that we have got inflation, it is just in case".
Bollard has said that holding interest rates at a record low 2.5% for the last year is an "extraordinary amount of monetary stimulus" and is no longer required but BERL disputes this.
They point out that 2.5% is a pretty high rate when compared with big countries like the US and the UK which have been operating well under 1% and they believe the RBNZ should not have raised rates until New Zealand's main trading partners do so.
Sanderson says BERL also disagrees with Bollard about the current state of New Zealand's economy.
The governor says New Zealand's economy is now in its second year of a recovery and it is now broad-based. He points to strong export receipts, predicted GDP growth and manufacturing expanision as all signs that New Zealand is ready for the very expansionary levels of monetary stimulus to be removed via OCR rate increases.
However BERL says Bollard has pulled the trigger too soon.
"We certainly aren't seeing a strong broad-based recovery as far as we can see. We are getting the odd bit of good news (but) a lot of it is good news around confidence rather than good solid things that are happening."
He admits there is some good news out of manufacturing sales but says volumes are way down and that while a solid terms of trade is positive, it will still be affected by New Zealand's ongoing drought which will restrict production.
Will you be affected by an interest rates rise? Do you think the Reserve Bank should have raised the OCR? Have your say below.
Add a Comment:
Post new commentlance_uk said on 2010-06-11 @ 19:09 NZDT: Report abusive post
Bollard cares nothing for ordinary New Zealanders, and is hell bent on ruining us all, we are all still trying to recover from the legacy of an excessively high OCR for years, which was plundered by offshore pension funds, every New Zealander has had to pay for that, and some still are, those poor sods on 9.3% fixed mortgages. When will the idiot realise we dont have spare cash to invest in shares or any thing else for that matter.
paulrichard said on 2010-06-11 @ 17:28 NZDT: Report abusive post
Corin, Do you know anything about economics or what is happening in the real world? Kel Sanderson is absolutely right. There is a great deal of hype about the recovery but its really not happening to the masses yet. I speak to many owners of small to medium sized business and all are saying the same. There business is going nowhere at the moment. They believe its bottomed out but are still to see any sign of recovery. Govt charges & increased interest rates point to double dip recession.
Noddy samurai said on 2010-06-11 @ 16:44 NZDT: Report abusive post
It just makes me sad to see our lives are left in such silly peoples hands. God helps us, with GST going up A.C.C going up the price of power going up and now Interest rates increasing. Has some body got bored ?!. Wake up we're all suffering out here.
spurs1 said on 2010-06-11 @ 15:06 NZDT: Report abusive post
My concern is that there has been really no wage increases over the last two years so Bollard saying we are prpepared I dont think the economy is. The average worker in NZ has probably seen thier wages go backward in terms of inflation etc so why pour on more misery to hardworking people. The UK has recently kept the rate at 0.5% why do we need to increase now. It makes no sense in people saying it recognises recovery it does not to the average man on the street.
skedz said on 2010-06-11 @ 12:21 NZDT: Report abusive post
I agree with Kel Sanderson. I think this is too early. I deal with small to medium sized businesses every day and they are still very much feeling the pinch. The economic recovery may have started but on a ground level basis it is still very shaky and there are the solid results for businesses yet.