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Call for no rate rise
Released 6 June 2011

The Reserve Bank should now rule out any increase in interest rates in the near future, following the 1.2% seasonally adjusted drop in the March quarter gross domestic product, according to the property development industry group Urban Taskforce.    

Urban Taskforce Chief Executive Aaron Gadiel said the Reserve Bank needs to urgently change tack.

“The figures shows that public sector economic forecasters had underestimated the impact of natural disasters on the national economy,” Gadiel said.

“The Reserve Bank’s Board is due to meet [this] week. It won’t be enough to merely keep interest rates on hold. The bank should shift the tone of its language, to make it clear that interest rate increases simply aren’t on the agenda in the period ahead.”

Gadiel said that the prospect of interest increases had made it more difficult for property developers to proceed with new projects desperately required by the community.

“Property developers have had to factor in bigger holding costs as they navigate complex approval processes and complete lengthy construction works,” he said.

“As a result, some new residential, retail, commercial and industrial development projects simply haven’t been able to get off the ground.”

Gadiel said that value of construction activity in the March quarter had increased by a seasonally adjusted 1.2% but the prospect of further interest rate increases would make it hard to sustain such increases in further quarters.

“Economic conditions are clearly not evolving as expected, so a clear message that interest rates will not be rising further in the period ahead is important,” Gadiel said.