KEY POINTS:
An Auckland business leader says there is a "very strong case" for Dr Bollard to cut, rather than increase, the Official Cash Rate (OCR) next week.
"All the latest evidence is pointing to a deteriorating economy and domestic demand slowing in the period ahead," said Auckland Chamber of
Commerce chief executive Michael Barnett.
"Given that the Reserve Bank's role is to ensure that inflation outcomes remain consistent with the 1 to 3 per cent inflation on average over the medium term - i.e. through to the middle of next year - then a clear case exists for the Reserve Bank to force a cut in interest rates when it makes its OCR announcement next Thursday", he advised.
Mr Barnett said the factors supporting an interest rate cut include:
* Numerous business surveys, including by the Auckland Chamber, expecting business conditions to deteriorate over the coming year.
* The huge damage the export sector is suffering and its flow-on impacts to the domestic economy from the record high value of the NZ$ against the US$.
* KiwiSaver, which started on July 1, will take an increasing amount of money out of the economy in the medium term.
* The reduced immigration quota just announced by Government was set specifically to help reduce pressures on house prices.
* Fuel prices will rise in line with current overseas trends when the dollar reduces, as it will with a cut in interest rates.
* Other than the dairy sector, primary product export prices are either flat or declining and therefore reducing domestic spending demand by farmers.
* Our economic growth and productivity rates are slowing, and by international standards are flat with a widening gap compared to neighbour Australia. This is making Australia an increasingly attractive market to live and work at a time NZ can least afford the losses.
"Finally there is our appalling weather affecting large areas of New Zealand. While there will be increased demand for reparation work, the overwhelming message from businesses affected by our tough winter is that consumers are battening down and keeping their wallets closed."
"If there was ever a time for the Reserve Bank to come out with a positive message, it is now," said Mr Barnett.
"I hate to predict the consequences of another interest rate rise on the 3-or-4 of the past few months. As things are now, we are chasing our tail and driving ourselves into a death spiral.
Mr Barnett went on to say that if interest rates are increased, it will simply encourage a greater flow of overseas money to seek windfall gains from New Zealand, attract more cheap imports and so force up spending and inflation pressures.
It will also encourage more businesses to shelve expansion plans or move across the Tasman, he claimed.
"We have to break the death cycle by sending a very clear message that the NZ interest rate rise cycle has reached its peak, and offshore investors should starting looking elsewhere for their windfall profits," concluded Mr Barnett.
