RBNZ: right message but no action

9 December 2010

The Reserve Bank has lumped much of the responsibility for high interest and exchange rates at the feet of the Government, blaming fiscal deficits for the problem. Lower interest rates and exchange rates will require both fiscal and monetary policy changes say the New Zealand Manufacturers and Exporters Association (NZMEA).

The Reserve Bank Governor Alan Bollard said at the Monetary Policy Statement this morning that, “Sustained strength in the currency is inhibiting the rebalancing of economic activity towards the tradable sector. Accelerated elimination of New Zealand’s fiscal deficit could help improve national savings, thereby easing current pressure on interest rates and the New Zealand dollar, and reducing New Zealand’s dependence on international borrowing.”

NZMEA Chief Executive John Walley says, “Alan Bollard has hit the mark with this statement. Fiscal imbalances are one of the main drivers of our unbalanced economy and it has been disappointing to see the Government reject proposals such as a capital gains or land tax and a higher superannuation age out of hand.”

“However, the Reserve Bank has the option to use existing supply side tools rather than expecting others to act. More can be done through prudential measures such as the Core Funding Ratio and Loan to Value Ratios, which can push back against foreign credit thereby reducing exchange rate pressures.”

“It seems that both the Reserve Bank and the Government are keen to pass the buck on economic imbalances. What the real economy needs is some action not finger pointing.”

ENDS

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