Monetary Review A Big Tick

February 28th, 2001

Professor Svensson's report on the management of New Zealand's monetary policy is illuminating for what it couldn't cover as well as for its reassurances that we enjoy best international practice in controlling inflation, says the Employers & Manufacturers Association.

"Our manufacturers, farmers and tourism operators can take heart from the review's findings," said Alasdair Thompson, EMA's chief executive.

"Professor Svensson's report is a very strong endorsement of the Reserve Bank's handling of New Zealand's monetary conditions and it's a big tick for Governor Brash.

"A lot of our concern centred around the period of the MCI targeting during the Asian crisis of 1997/98 so it is good to have the failures of the past acknowledged and confirmed by both Professor Svensson and Dr Brash. We also appreciate Dr Brash's willingness to consult widely throughout the country.

"We congratulate Professor Svensson for the report's clarity and welcome his recommendations, especially his assertion that "the Reserve Bank is currently using the appropriate instrument for the operation of monetary policy."

"Io ensure the Bank's decisions are based on the best information, we are particularly pleased to see the recommendation for Statistics New Zealand collect more data on consumer inflation and industrial production, and to consider introducing alternative ways to measure inflation expectations.

"What the report does not address, and critical to economic growth is the need for Government policies that are consistent with achieving price stability.

"Over the past decade our wealth and employment creating sectors suffered several reversals of fortune as a result of interest and exchange rate shocks driven by a lack of competition in sectors such as electricity, and with central and local government costs rising way ahead of inflation.

"We urge Finance Minister Cullen to prevent a repetition of the lessons learnt from those years."

Further comments: Alasdair Thompson tel 07 377 3713

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