Bollard bumbles along

Friday 9th March 2007

Bollard bumbles along

"Economic activity continues to pick up with apparent purpose and direction, but Reserve Bank Governor Alan Bollard's announcement of an increase in the Official Cash Rate is clouded by words of uncertainty," says John Pemberton, Finance Spokesman, DSC.

"Bollard begins with very positive descriptions of a successful New Zealand economy - 'Strengthening domestic demand . a recovery in confidence . a strong growth in household incomes . a lift in export prices . The short-term inflation outlook continues to ease.' It all sounds pretty good," Pemberton says.

"But Bollard then becomes uncertain, loses his confidence - it is all too good. He says '.the recent pick-up in housing and domestic demand may gain momentum.This could reverse the rebalancing of the economy .a costly correction in the country's external deficit.'

"He's not too sure how to handle it all," Pemberton declares. "Should he continue 'to assess alternative measures that might support the OCR' or work with 'the relevant government agencies'? What about 'a tightening of tax rules' or a few 'changes to bank capital requirements'? In the end, Bollard decides not to decide. 'We will continue to rely on the OCR.' he mumbles.

"The Reserve Bank Governor has no idea of the tools he could use to facilitate a successful New Zealand economy - a non boom-or-bust economy. He will certainly not get the answers by 'working with the relevant government agencies' or fiddling with tax rules. The truth is, raising the OCR is exactly opposite of what should be done to manage the New Zealand economy.

"The huge cost of interest should be removed from the pricing structure by slashing interest rates. Credit growth could then be managed through varying the length of repayment terms.

"As it is now, 'a strong growth in household incomes' is an illusion. The New Zealand economy is merely about managing numbers, instead of enhancing the real prosperity of ordinary Kiwis."

"Bollard is bumbling in the wrong direction."

ENDS

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