Don Brash National Finance Spokesman

19 September 2002

Monetary policy was right - Brash

A briefing note released by the Reserve Bank today on the Policy Targets Agreement directly challenges many of the assertions made by the Finance Minister about the recent operation of monetary policy, says National's Finance spokesman Don Brash.

"In particular, the briefing note finds that monetary policy in New Zealand is not noticeably more aggressive than elsewhere.

"This completely contradicts comments lately from Michael Cullen suggesting that recent monetary policy experience in New Zealand has been overly aggressive.

"In fact, the Reserve Bank goes on to say that research suggests that had the United States Federal Reserve or the Reserve Bank of Australia been running monetary policy in New Zealand over recent years, their interest rate decisions would have been broadly similar.

"The Bank also finds recent research suggests low inflation rates are likely to be beneficial for growth and that monetary policy in New Zealand has been stabilising for the economy.

"These findings support the Government's own review of monetary policy carried out by Professor Lars Svensson who found twelve months ago that "the Reserve Bank's current conduct of monetary policy is entirely consistent with the best international practice of flexible inflation targeting, with a medium-term inflation target that avoids unnecessary variability in output, interest rates and the exchange rate"

"Dr Cullen's tinkering with the Policy Targets Agreement will do nothing to achieve higher economic growth. In fact, given the risk of higher trend inflation, it is more likely to be harmful to growth," said Dr Brash.

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