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Greens support review of monetary policy

Greens support review of monetary policy

Green media release 18-4-08

The Green Party is adding its voice to calls for a thorough review of monetary policy in light of further closures of New Zealand manufacturers, and is calling on Labour and National to remove their new right blinkers on monetary policy so we, as a nation, can consider alternatives.

“The Reserve Bank is trying to use high interest rates to dampen domestic inflationary pressures. But much of the inflationary pressure is actually coming from commodities, such as fuel and food, whose price is set by international markets and our interest rates have little effect on the rising price of these commodities,” says Dr. Russel Norman, Green Co-leader and economics spokesperson.

“High interest rates drive up the value of the New Zealand dollar which makes it difficult for New Zealand producers to compete with cheap imports and difficult for New Zealand exporters. We are crushing our productive sector with high interest rates without having much impact on inflation. Where is the sense in that?

“Along with the trade deal with China, the high dollar is one of the reasons for the loss of jobs in the manufacturing sector and the chronic current account deficit,” says Sue Bradford, Green spokesperson on regional economic development.

Dr. Norman says interest rates are also making it difficult for ordinary people to pay their mortgages and rents.

“It’s time we considered alternatives and that requires Labour and National to drop the ideological new right blinkers on monetary policy. We need to look at using alternate policy instruments that directly target inflation, such as measures to reduce our dependence on imported fossil fuels,” says Dr. Norman.

“And we need to consider revising the Reserve Bank Act to take into account that increasing the official cash rate has little effect on the international inflationary pressures on the New Zealand economy.

“Increasing interest rates may have a short term effect on reducing the inflationary pressures coming from overseas by driving up the dollar, but in the long term as we can’t forever keep increasing the value of the dollar. It is not a sustainable strategy.

“Green Co-leader Jeanette Fitzsimons is sitting on the Finance and Expenditure Select Committee inquiry into future monetary policy framework and is working hard to ensure that we better understand how environmental and resource limits are a major contributor to inflationary pressures. Monetary policy by itself cannot deal with these issues.

Dr. Norman says the best response to rising fuel prices is to invest in alternatives to the use of fossil fuels such as public transport, walking, cycling and rail freight.

“We are trying to use domestic interest rates to crush inflationary pressures coming from overseas. We would be better to target the causes of inflation directly, rather than crushing the entire productive sector and making rents and mortgages unaffordable.”

ENDS

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