Revise Reserve Bank Act to tackle dollar

Revise Reserve Bank Act to tackle dollar - 9 June

The Reserve Bank Act’s objectives must be changed to include tradable sector growth say the New Zealand Manufacturers and Exporters Association (NZMEA). Inflation targeting might have worked at the headline level but only at the expense of the tradable sector; domestic inflation has tracked well above the target band. New Zealand must follow most other developed nations and look to implement alternatives.

NZMEA Chief Executive John Walley says, “The Reserve Bank can claim that under the Reserve Bank Act objectives it’s doing a good job.”

“A quick look at the economy clearly shows this is not the case. Growth coming out of the recession has been weak despite record terms of trade and strength in two of our major trading partners, Australia and China. The high dollar is made worse by interest rate differentials between New Zealand and those in Europe and the United States.”

“There are a number of actions the Reserve Bank could take, particularly through capital controls, to strengthen the traded economy and provide faster GDP and job growth,” says Mr Walley. “While the only target remains inflation these initiatives are not considered.”

“John Key mentioned yesterday that regular currency intervention was unlikely to change the direction of the exchange rate. This is debatable but in any event other options are available and necessary.”

“Other countries are taking action to lower their exchange rates, whether through quantitative easing in the United States and the United Kingdom, capital controls in Canada and Brazil, direct currency management in China and Singapore, or regulatory prudential mechanisms in Turkey and elsewhere. We must also act to protect our tradable sector; a change to the Reserve Bank Act would be a good start in this process.”

ENDS

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