BERL calls on Reserve Bank Governor to hold nerve

07 March 2007

Media Statement for immediate release

BERL calls on Reserve Bank Governor to hold his nerve

Independent economic researchers BERL called on the Reserve Bank Governor to not raise the OCR tomorrow.

“The Governor should continue focussing on the needs of the wider economy and, in particular, the export sector and should resist calls from those narrowly focussed on taming excesses in the housing market,” said BERL Senior Economist Dr Ganesh Nana. BERL suggests tomorrow’s Monetary Policy Statement include the following points.

1) No increase in the OCR.
2)
3) A strongly-worded statement from the RB that the medium term outlook for inflation remains well within the 1% to 3% range as specified by paragraph 2b of the Policy Targets Agreement (PTA). Yes, some inflation measures are elevated, but all are heading in the downwards direction and, on average over the medium term, there is no reason to expect further increases in the OCR.
4)
5) A similarly strongly-worded statement that it is neither the RB’s role, nor the function of monetary policy, to control house prices. The RB remains focused on maintaining a stable general level of prices as specified in paragraph 1a of the PTA.
6)
7) Commentary stressing the importance of non-housing sectors of the economy. Those narrowly focussed on the housing sector risk overlooking the long-term damage to the economy caused by sacrificing the NZ export sector in order to rein in the excesses of the housing market.
8)
9) Advice to the Minister that should he wish the housing market to be the focus of the RB, then:
10)
a. a revision of the PTA incorporating a properly specified house price inflation target would be required, perhaps also involving amendments to the RB Act; and
b.
c. most importantly, the RB would need to be empowered to use another policy instrument or tool, as the OCR alone will not succeed in achieving a house price inflation target.
d.

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