The NZ Manufacturers and Exporters Association (NZMEA) is calling for The Reserve Bank to cut the Official Cash Rate (OCR) on Thursday, arguing a lower interest rate and exchange rate going into 2011 will provide a more stable recovery.
NZMEA Chief Executive John Walley said in a statement manufacturing volumes were at a 10 year low and exporters needed help to lead the recovery, despite signs of recovery.
"We have always been of the view that September should have been the first point to even consider a rate increase. Add in the South Canterbury Finance collapse and an earthquake in Christchurch, and the OCR hikes are looking increasingly unnecessary," he said.
Walley said a Global Competitiveness Index released last week ranked NZ 79 out of 139 countries on interest rate spreads (the difference between typical lending and deposit rates), which showed that exporters needed better alignment.
He said faltering recoveries in Europe and the US had caused their central bankers to signal long-term low rates, threatening NZ's export volumes and margins.
"We need a rate cut to send some strong signals on the exchange rate to support exporters," he said.
Federated Farmers wants OCR held
Federated Farmers said it was "extremely cautious" about any tightening of the OCR.
Spokesman Lachlan McKenzie said he wanted a clear statement in Thursday's Monetary Policy Statement that the OCR would be put on hold for the remainder of 2010.
"This will help provide a floor, given the effective interest rates that farm businesses pay is much higher than the OCR," he said.
McKenzie said a struggling US economy, commodity price recoveries and increased risk appetite had caused the NZ dollar to appreciate to 73 USc.
That made for a tough international trading environment for export businesses like farms.
“Despite the latest rise in the most recent globalDairyTrade event, we’re still in negative territory for whole milk powders overall since August. For our sheep, beef and grain farmers, things are especially tough and the dollar’s strength is not helping," McKenzie said.
While some in the markets might think the earthquake reconstruction in Canterbury will boost the national economy, the bigger risk to an export led economic rebalancing is the NZ dollar, McKenzie said.
"Federated Farmers hopes a ‘warts and all’ Monetary Policy Statement, combined with a policy indication towards a hold for the balance of 2010, will ease this short-term pressure,” he said.