27 November 2009 Media Statement

Reserve Bank changes reinforce Labour’s call

Reserve Bank Governor Alan Bollard’s confirmation that the Reserve Bank is introducing new complementary monetary policy tools accords with Labour’s call for reform, Labour Finance spokesperson David Cunliffe and Associate Finance spokesperson David Parker said today.

Parliament’s Finance and Expenditure Committee today released its November 2009m Financial Stability Report, based on evidence presented by the Reserve Bank.

“The Bank confirmed to FEC that it is introducing a new prudential liquidity policy designed to provide complementary tools to the Official Cash Rate (OCR),” David Cunliffe said.

“The rationale for this change aligns with the recent announcement by Labour Leader Phil Goff that Labour is withdrawing from the earlier consensus on the OCR as the sole instrument of monetary policy.”

David Cunliffe said the Reserve Bank is moving to new counter-cyclical tools, in line with the international trend embodied in the Basel II agreement.

David Parker, whose brief includes monetary policy, said: “Phil Goff, Dr Bollard, Labour, the Reserve Bank, the Manufacturers and Exporters Association, the Productive Economy Council, the Parliamentary Banking Inquiry and many others are in effect saying the same thing: it is time to move forward and to broaden the monetary policy tool set.

“Where is Bill English? The Minister of Finance now appears increasingly isolated as the defender of a pre-recession policy status quo that is no longer adequate,” David Parker said. “We need a stable environment to support our exporters upon whom New Zealand workers rely.”

David Cunliffe said: “The Reserve Bank told FEC that it considered it was able to implement this change within the framework of the existing Reserve Bank Act.”

David Parker said: “In introducing new counter-cyclical prudential and monetary tools to support the OCR, the Reserve Bank can see what the Minister cannot – monetary policy must evolve to meet the needs of our economy in the wake of the global financial crisis.”

ENDS

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