Economists Berl have lambasted the "stop-go" effect of interest rate rises on economic growth.
In its latest forecasts, the long-time critic of hands-off economics also questioned the sole use of monetary policy to drive growth and said regional development was essential for economic health.
Berl said the Reserve Bank's policy of using
interest rates to bolster the currency and control inflation was doing "irreparable harm."
"New Zealand has been through a period with a number of phases when business was 'restructured' or squeezed out by exchange rate fluctuations," Berl forecasts editor Dr Ganesh Nana said.
"This reliance on a 'stop-go' policy has resulted in a mindset of contraction in infrastructure and related services."
While a low exchange rate was necessary to ensure a sustainable economic recovery, high interest rates were concerning.
Dr Nana cited their effect on public companies as one example.
"Foreign investors are already aware that the majority of New Zealand companies are not earning enough to pay dividends at previous rates. Thus they are selling out.
"If interest rates go much higher, profits will decline further and there will be no option but to cut dividends further.
"In such an eventuality, the present doubts about New Zealand companies could well turn into a substantial round of capital flight."
The sharemarket has been trading at 15-month lows since last week, with Cavill White Securities head Don Turkington yesterday saying institutional selling was unrelenting.
Dr Nana said that Berl's criticism was not solely directed at the Reserve Bank.
"They're doing what they're supposed to do which is being ... in charge of interest rates. We're just saying there should be somebody else in charge of other things."
Dr Nana said it was time fiscal, regional, industry and population policies were also applied.
"Together with a more steady balance on the monetary tiller, New Zealand could well be poised to see several years of moderate economic and employment growth. Our projections reflect such a scenario."
Berl's forecasts come a week ahead of the Reserve Banks' latest quarterly monetary policy statement.
- NZPA
