No compelling case to increase interest rates

Print

No compelling case to increase interest rates

There is no compelling case for an increase in interest rates, says Business NZ.

Chief Executive Simon Carlaw says there are a number of one-off reasons for the strong growth in the March quarter, including:

• the lower exchange rate from 2000 still flowing through into farm earnings
• last year’s cut in interest rates which boosted housing construction
• the September 11th attack which led to higher consumer spending in NZ through more people staying at home
• the loosening of the immigration points system and the impact of the global recession which turned around NZ’s migration figures.

But Mr Carlaw says the growth outlook is more uncertain later this year.

“Export growth is yet to resume since last September.  While there are the first signs of a turnaround in the US economy the outlook for Japan and other Asian markets is not positive.  Farm earnings are likely to decline as the exchange rate rises.  As well, the growth in the building sector is expected to slow as the stimulatory effects of lower interest rates wear off.  And the Government has increased the number of points required by immigrants so that inflow will slow later in the year.”

Mr Carlaw said there were no signs of immediate inflationary pressures in the economy:

• increased immigration has reduced labour market pressures
• investment expenditure has increased, reducing capacity concerns
• the stronger currency and global recession will limit the ability of firms in the tradeables sector to increase prices.