18 Sep 2010

Reserve Bank under pressure to cut interest rate

9:49 am on 18 September 2010

The Reserve Bank is coming under pressure from exporters and unions to cut the Official Cash Rate (OCR).

On Thursday the bank downgraded its forecasts for the economy while holding the benchmark interest rate at 3%.

Governor Alan Bollard says it will keep the rate on hold while it assesses the impact of the Canterbury earthquake and general economic conditions.

The bank expects growth to be significantly lower in the next few years and unemployment higher than it last forecast in June.

The Manufacturers and Exporters Association says, however, that even keeping the OCR at its current level risks killing off export growth.

And the Council of Trade Unions (CTU) says the rate is too high, given the large number of people still out of work.

CTU secretary Peter Conway says he doesn't believe it is helping to stimulate the economy.

Bollard sees weaker economy

Dr Bollard says it will take a significant downturn, nationally or globally, before he considers cutting the rate again.

There has been some export growth, he says, and he believes that businesses will be re-investing by next year and that the housing market has bottomed out.

But he says the economy is looking a bit weaker than he thought it would in June.