6 December 2012

Greens seek more pragmatic approach to monetary policy

A cut in the Official Cash Rate (OCR) would have eased pressure on the overvalued exchange rate, helping to rebalance the economy towards exports and manufacturing, the Green Party said today.

A lower Official Cash Rate (OCR) is likely to lead to lower domestic interest rates which, in turn, will take pressure off our overvalued exchange rate, helping exporters and manufacturers who compete with imports.

“Graeme Wheeler had scope to cut the OCR today as a first step to addressing our overvalued currency and seriously unbalanced economy,” Green Party Co-leader Dr Russel Norman said.

“As Wheeler himself said in his statement accompanying his decision, ‘The high New Zealand dollar continues to be a significant headwind, restricting export earnings and encouraging demand for imports.’

“The overvalued New Zealand dollar is hurting exporters and manufacturers who compete with imports – one of the main drivers of massive job losses in this sector.

“A more pragmatic use of the OCR, combined with the use of other macro-prudential tools to manage specific inflationary pressures, would mean monetary policy could be used to address the fundamental imbalances faced by the New Zealand economy, reflected in our worsening current account deficit.”

Dr Norman renewed his calls for wider reform of the Reserve Bank mandate and the way the Reserve Bank makes it decisions around the Official Cash Rate.

“No other country in the OECD gives full responsibility for the OCR decision to one person – the Reserve Bank Governor,” Dr Norman said.

“This is completely antiquated. It leads to poorer decisions – decisions which don’t reflect the wider economic interests at stake when the Official Cash Rate is set.

“We’d bring the Bank into the twenty-first century by making the Reserve Bank Board accountable for setting the Official Cash Rate, while ensuring the Board includes representatives from the export and manufacturing sectors.”

ENDS

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