Today's decision by the Reserve Bank to cut the official cash rate despite a burgeoning housing bubble in Auckland is yet another warning to the Government that the economy is becoming increasingly vulnerable and unbalanced, Labour’s Finance spokesperson Grant Robertson says.
“Despite the risk of pouring petrol on an overheated Auckland housing market by cutting interest rates, the weakness of the economy, wages and exports has forced the Governor to cut the OCR.
“Graeme Wheeler has been put into a difficult situation with the Government effectively outsourcing housing policy to the Reserve Bank while the value of our largest export commodity continues to slump.
“The economy is becoming increasingly unbalanced with dairy exporters facing a $13 billion black hole over two seasons, as speculation on Auckland house prices expands rapidly. There could be catastrophic effects on the wider productive economy if – on top of the loss of export earnings – the Auckland housing bubble bursts.
“The Reserve Bank’s decision is not painting a pretty picture of our economic outlook. Wage growth is sluggish, unemployment is forecast to stay above 5 per cent and Graeme Wheeler predicts the Government will not fulfil its promise to make surplus in the current year let alone the next.
“It's not just the Reserve Bank saying this. The OECD just yesterday flagged the risks our economy faces. And ANZ Bank is now suggesting growth in the current June quarter could turn negative.
“Growth based on housing speculation, disaster recovery and riding the wave of commodity prices was never going to be sustainable. It’s time for the Government to change its approach and strengthen the economy.
“The Government needs to stop being so complacent and support the Reserve Bank and New Zealanders by building a more inclusive and diverse economy to provide stronger growth and fairer outcomes,” Grant Robertson says.