OCR: The sharpest tool in the box?

Media release
May 9, 2007

OCR: The sharpest tool in the box?

Monetary policy needs mates.

As the Government proposes a wide-ranging inquiry into how the Reserve Bank fights inflation, Business NZ examines some of the mechanisms available to support the official cash rate as the bank’s chief monetary tool.

This is found in the booklet: OCR: The Sharpest Tool in the Box? Giving interest rates some help to control inflation.

The popularity of fixed mortgage rates has taken the sting out of the official cash rate’s ability to curb housing inflation. Instead, exporters have taken a prolonged battering from the soaring kiwi dollar.

OCR: The Sharpest Tool in the Box explores recent research on monetary policy and sets out a variety of measures to control inflation, exploring the pros and cons of each.

Business NZ chief executive Phil O’Reilly says not all the options reflect Business NZ policy, but are put up for contribution to the wider debate.

The organization deems several worthy of further investigation, including putting a lid on government expenditure, improving the responsiveness of housing supply and adjusting interest rates more decisively.

Some options, such as imposing a charge on people migrating to New Zealand, Business NZ rejects as not worthy of investigation at this time.

Phil O’Reilly says there’s clearly no silver bullet, or total fix.

“But a careful examination of the options helps us see how some courses of action can help dampen down inflation in the first place, while others can help minimise its effects on interest rates or the housing market.

“The more we learn about monetary policy, and about our unique circumstances in the New Zealand market, the better we will get at managing our future prosperity. I hope many will take the opportunity to get involved in this vital debate.”

The booklet can be read online at: http://www.businessnz.org.nz/file/1195/OCR%20Magazine%20PDF.pdf

ENDS

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