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U-turn on monetary policy will feed interest rates

Bill English MP
National Party Finance Spokesman

3 July 2008

Labour’s u-turn on monetary policy will feed higher interest rates

"New Zealanders will face higher interest rates for longer if a desperate Labour Party throws out sensible inflation management," says National Party Finance spokesman Bill English.

He was commenting on the proposals put forward by Associate Finance Minister Trevor Mallard that Labour intends to break 20 years of political consensus and change the monetary policy framework.

"Inflation is currently headed for 5%. This is not the time to start tinkering with a monetary framework which is in use worldwide. From its comments, the Reserve Bank recognises the affect that international oil and food prices are having, and is not going to strangle our economy because of imported inflation.

"However it has been well recognised by government officials and commentators that increases in government spending, poor quality spending, and increases in government charges, are also stoking inflation domestically.

“Trevor Mallard would be well advised to focus on these inflation factors, rather than signalling a drastic rethink on monetary policy.

"If inflation management is thrown out at this critical point in the economic cycle, inflation expectations will rise, interest rates will stay higher for longer and economic recovery will be delayed.

"The statements from Labour signal an end to any pretence of sound economic management, and once again have the smell of a desperate attempt to be seen to be doing something before the election.

“Labour should focus now on measures to strengthen the economy and getting us on a path of better economic performance, not playing politics with the money supply."


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