Reserve Bank of New Zealand

Press Release

6 April 2006

Report on supplementary tools released

The Reserve Bank and the Treasury today released a joint report (www.rbnz.govt.nz/monpol/about/) on possible additional instruments to supplement the role of interest rates in managing demand pressures and inflation.

This report, prepared under terms of reference (www.rbnz.govt.nz/monpol/about) issued in November 2005, was prompted by the recent strength and persistence of domestic household demand, the scale of the accompanying external imbalances, and the key role played by the house price cycle.

In calling for this report, it was considered that, if additional non-interest rate instruments were available to more directly target the housing sector, they might alleviate some of the pressures on the exchange rate and the traded goods sector. Such instruments would be structured so that they would be relevant for use in any future period of cyclical housing pressure, said Reserve Bank Governor, Alan Bollard, and Secretary to the Treasury, John Whitehead, in a joint statement.

"The report considered a range of possible additional instruments. It concludes that there are no simple, or readily implemented, options that would provide large payoffs in the near-term, without significant complications and costs, but there are some areas in which further work may be appropriate. These will be picked up in the course of ongoing work on macroeconomic policy.

"We remain interested in the possibility that additional discretionary instruments, including ones not directly related to the housing sector, might be able to mitigate the impact on the tradables sector of cycles in domestic demand, but further work in this area is not a high priority for us at present."

The report was prepared by a joint team of Treasury and Reserve Bank officials for the Governor and the Secretary, who then made recommendations to the Minister of Finance. Also released today is the letter (www.rbnz.govt.nz/monpol/about) provided by the Governor and Secretary to the Minister of Finance.

ENDS

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