Goff says monetary policy must support exporters

Labour Leader Phil Goff has told farmers today that Labour will create a monetary policy environment that better supports exporters, and says he has a Bill ready to support broader objectives for the Reserve Bank.

Speaking at the Federated Farmers annual conference in Invercargill, Phil Goff said: “We are in a new economic environment. We are more dependent on our exports than ever before. But our economy is out of balance. We need policy that better supports exports, and better supports investment in job-rich production and enterprise.

“Persistently high interest rates have imposed significant costs on our economy,” Phil Goff said. “During the global financial crisis, the world economy was faltering, markets were weak, and prices for our export commodities fell.

“Thousands of farmers were in real stress. Many carried high debt, after converting to dairy, or borrowing against land prices driven higher by cyclical high commodity prices, and yet, at a time when rural debt reached $45 billion, interest rates one percent higher than they might have been removed $450 million from farmers’ bottom lines.”

Phil Goff said high interest rates had put export businesses at a disadvantage against overseas competitors, who borrow more cheaply.

“The heavy trade in our currency comes at the price of a highly volatile Kiwi dollar. And the volatile dollar makes the business environment riskier for you and for others involved in export business,” Phil Goff said.

“It will take more than a single policy response to fix these problems. We can take pressure off interest rates by supportive policy at home, and we can invest to grow productivity through better skills and better R & D, but we also need a more supportive monetary policy that helps rebalance our economy.”

Phil Goff said Labour will retain key features of current monetary policy but make some significant changes. “The independence of the Reserve Bank is essential. So too is its focus on inflation. But we will require the Reserve Bank to pursue broader objectives, while retaining our full commitment to price stability.

“New Zealand is unusual internationally in having a single policy goal for the Reserve Bank. Australia, in contrast, is also required to aim for a stable currency, full employment, and the economic prosperity and welfare of the people of Australia. The Bill I have had drafted will introduce the same outcomes for our Reserve Bank.”

Phil Goff said Labour also wants to give the Reserve Bank a broader set of tools. “For example, we are looking at greater use by the Reserve Bank of prudential supervision tools to regulate banks’ capital adequacy. In the past, the Reserve Bank has only used this power to weakly control risks to loan books. It hasn’t regulated banks’ overall lending with respect to wider economic risks. This will change. The Reserve Bank can better respond to asset bubbles like those that helped create the global financial crisis.

“I firmly believe that if the Reserve Bank had better powers, it wouldn’t need to crunch farmers and other exporters to restrain house price bubbles in Auckland.”

ENDS

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