IMF Report Champions Reality Over Rhetoric

IMF Report Champions Reality Over Rhetoric

The International Monetary Fund (IMF) has released a report called Rethinking Macroeconomic Policy which has challenged assertions that inflation targeting was the best option for world economies, admitting that in light of the economic crisis this policy was wrong. The New Zealand Manufacturers and Exporters Association (NZMEA) say that this report further reinforces the need for New Zealand to move away from the one target one tool approach to monetary policy that has been so devastating to our tradeable sector.

NZMEA Chief Executive John Walley says, “The IMF has admitted what has been clear for some time, that inflation targeting has had appalling consequences particularly for those countries that applied it most vigorously. The countries that have grown most quickly over recent times have been those, such as China and Singapore, who have rejected the monetary policy consensus.”

The report also pointed out that smaller countries tended to pay close attention to the exchange rate rather than simply using it to address their inflation target. It noted that, “Their actions were more sensible than their rhetoric. Large fluctuations in exchange rates, due to sharp shifts in capital flows (as we saw during this crisis) or other factors, can create large disruptions in activity.”

“Unfortunately under the guise of ‘best practice’ New Zealand has embraced the rhetoric and macroeconomic management has been less than sensible,” says Mr. Walley. “Little attention has been paid to wild exchange rate fluctuations leading to long term damage to the real economy, growth and jobs.”

“Hopefully this report will send a clear message to the Government and the Reserve Bank that ‘best practice’ rhetoric needs to be tempered by experience.”

ENDS

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