11 Jun 2015

Bank forced to stimulate economy - Labour

2:48 pm on 11 June 2015

The Labour Party says the Reserve Bank has been forced to cut interest rates to stimulate the economy - and that serves as another warning to the Government to stop being complacent.

The central bank today reduced the Official Cash Rate (OCR) from 3.5 to 3.25 percent, the first cut in more than four years, in response to weakening demand and low inflation.

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Grant Robertson

Grant Robertson Photo: RNZ / Diego Opatowski

Labour's finance spokesperson Grant Robertson said the economy was becoming increasingly unbalanced with dairy exporters facing a $13 billion black hole over two seasons.

"What [the Reserve Bank Governor] is trying to do is stimulate some activity in the New Zealand economy because at the moment it is looking sluggish.

"A lot of what needs to happen falls back at the feet of the Government in terms of what policies they got to help stimulate sustainable growth in the New Zealand economy."

New Zealand First leader Winston Peters said the Reserve Bank's action was long overdue.

The OCR level had been holding up the dollar at an artificially high rate, he said.

"But worse that that, this is so little and so late, and meanwhile much of provincial New Zealand is in serious trouble."

Mr Peters said the Government had been allowed to favour currency speculators when it should have been working for the economy.

The Prime Minister said today's OCR cut was a good move and he was confident it would not fuel significant price rises in the Auckland housing market.

John Key said lower interest rates would ease pressure on businesses and home-owners.

Mr Key said he did not think today's cut would fuel price rises in the Auckland property market, because the Government was increasing the supply of houses there.

"Look, it'll be at the margins. Interest rates actually have been very low in New Zealand - they've been at 50-year lows for a very long period of time," he said.

"The banks have been engaging in somewhat of a mortgage war anyway. Even without the Reserve Bank Governor, they've been lowering interest rates.

"So I suspect it'll help home owners but I'm not sure it'll do too much to accelerate the market."