Monetary policy change needed

Monetary policy change needed

With Dr Alan Bollard due to leave the Reserve Bank of New Zealand there is a clear opportunity to review and change the Policy Targets Agreement between the Reserve Bank Governor and the Minister of Finance say the New Zealand Manufacturers and Exporters Association (NZMEA). There is little prospect of any change to the Official Cash Rate in the Monetary Policy Statement on Thursday, but a real debate on whether our monetary policy is serving New Zealand’s interests is urgently needed.

NZMEA Chief Executive John Walley says, “Interest rates consistently among the highest in the developed world have caused a long-term overvaluation of the New Zealand Dollar, hitting exporters hard. Monetary policy has been the biggest reason for this.”

“Borrowing to finance spending, as evidenced by a structural current account deficit, is no way to run an economy. Changes must be made to ensure export competitiveness.”

BERL Chief Economist Dr Ganesh Nana has suggested that the Reserve Bank’s target be changed to:

“The primary function of the Reserve Bank is to monitor the availability of credit to business to ensure the growth of profitable export income-earning enterprise consistent with an external balance of payments target that reduces the nation’s external debt.”

“This seems like a more sustainable approach,” says Mr Walley “Our living is earned by exporters in offshore markets and import substitution: as it is elsewhere in the world, this must be the focus of our monetary policy.”

“Pretending what we have is working only defers the problem. We must act now to support our tradable sector.”

ENDS

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