OCR inflation targeting ‘not optimal’

OCR inflation targeting ‘not optimal’, time for change – 10 March

A ‘lower for longer’ message must accompany a real review of monetary policy following the release of an International Monetary Fund (IMF) report say the New Zealand Manufacturers and Exporters Association (NZMEA). The IMF report released last month rejected the notion that a simplistic single lever, single target approach is the path to growth for a small economy.

The report said that, “strict inflation targeting is not optimal, and the consequences of adverse exchange rate movements have to be taken into account.”

NZMEA Chief Executive John Walley says, “The IMF has now supported practical evidence that small countries must look to control their exchange rate to promote growth and avoid battering their tradeable sectors. Hopefully we will see the ‘lower for longer’ message to address short term currency issues on Thursday, along with some reaction to the IMF’s new position.”

“In a series of presentations after the last Monetary Policy Statement, Reserve Bank Governor Dr. Alan Bollard defended the inflation targeting approach to monetary policy as international best practice. In light of New Zealand’s export growth record over the past few years and the IMF’s rejection of the approach this stance needs to be reviewed,” says Mr. Walley.

“Small countries that have managed their currencies have attained considerable growth in the last decade whereas those who have left themselves vulnerable to the whims of international money markets have suffered.”

“There has been a lot of talk about how to rebalance the economy to restore higher growth rates; a more stable currency is the starting point.”

“The continued weakness of our economy justifies continued monetary stimulus.”

ENDS

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