Policy Targets Agreement same old same old

PTA same old same old

21 September 2012

The new Policy Targets Agreement (PTA) between the Reserve Bank and the Finance Minister remains rooted in a discredited past orthodoxy and sets the scene for greater contraction in the export sector say the New Zealand Manufacturers and Exporters Association (NZMEA). The new Agreement between Graeme Wheeler and Bill English released yesterday detailed only minor changes.

NZMEA Chief Executive John Walley says, “The world has changed since the theoretical foundations of inflation targeting in the 70s and its implementation in the 1980s. In today’s world deflation is a far greater threat to our economy than inflation. A persistently overvalued currency has caused the tradable sector of the New Zealand economy to shrink since 2004. To a large extent that has been driven by policy contrasts between our central bank and central banks elsewhere. While New Zealand has strictly targeted inflation other central banks have taken a wider and more flexible approach.”

“We have now fallen well behind current international practice with our monetary policy – mindsets have to change.”

“A number of fast growing Asian countries were the first to catch on to a monetary policy framework that allowed exports to prosper and their economic growth has reflected that. More recently a large proportion of the Western world has started to focus on external growth in response to the global economic crisis.”

“Unfortunately this decision has left New Zealand lagging behind.”

“The decision to take asset prices into account as a measure of financial stability is a helpful tweak but it is only the tip of the iceberg. Without changes to the targets of the Reserve Bank Act we will only see a continuation of conditions that suit banks, and currency and asset speculators, rather than those earning export incomes.”

“This is another sign of the Government neglecting export growth. This stance has and will continue to cost us dearly in terms of growth, jobs and incomes.”

ENDS

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