Bill English
National Finance Spokesman

4 April 2007

Governor needs to explain bank talks

Reserve Bank Governor Dr Allan Bollard needs to explain how his private discussions are consistent with transparent monetary policy, says National Party Finance spokesman Bill English.

Mr English is commenting on a series of private visits by Dr Bollard to management of the trading banks which coincided with significant rises in two-year fixed-term interest rates.

"Usually, the Governor's views about monetary policy are communicated by public statements to the whole market. His words and tone are carefully scripted and heavily scrutinised.

"The banks which Dr Bollard met have confirmed that the private discussions had at least an indirect impact on their interest rate settings.

"Transparency has been a critical element of the monetary policy framework so no-one in the financial markets has an information advantage over anyone else.

"The Governor should also explain if he is using his tools for prudential supervision of the banking system to privately influence monetary policy.

"There is no evidence that bank lending practices represent a risk to stability of the financial system, and the Reserve Bank has so far offered no explanation as to how and when it might use prudential supervision tools to control inflation.

Mr English says an explanation would avoid speculation about how and why banks have lifted their mortgage rates and profit margins as a result of his visits.

"I fully understand that Dr Bollard has been frustrated by Michael Cullen, who continues to ignore repeated warnings about the danger to inflation posed by Labour's plans to accelerate spending.

"Since Dr Cullen refuses to listen, Dr Bollard has been forced to look elsewhere for answers."

ENDS

© Scoop Media