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Reserve Bank not able to address high exchange rate

26 April 2012
Reserve Bank not able to address high exchange rate

A practical approach to monetary policy would allow the Reserve Bank to lower the Official Cash Rate easing pressure on the overvalued New Zealand dollar, Green Party Co-leader Russel Norman said today.

Reserve Bank Governor Alan Bollard left the OCR unchanged today at 2.5 percent despite low inflation citing strength in the housing sector as a reason not to lower the OCR.

“If the Reserve Bank had other tools at its disposal besides the OCR, it could have reduced interest rates today while using other mechanisms to keep house prices in check,” said Dr Norman.

“That would take the pressure of our overvalued exchange rate and help exporters.

“The Reserve Bank could actively manage the risks to the economy of another housing price bubble with other monetary policy tools like increasing banks’ domestic capital requirements and more stringent loan-to-value lending criteria.

“The Bank just needs the Government to give it a broader mandate to use a wider range of tools.

“Complementary fiscal measures like a comprehensive capital gains tax (excluding the family home) would also assist with the rebalancing and further reduce the pressure on our overvalued kiwi dollar.

Dr Norman expressed concern that the National Government’s current economic management was failing to address the worsening current account deficit.

“Current monetary policy is no longer working well for the New Zealand economy,” Dr Norman said.

“It’s time to think different and follow the successful lead countries like the USA, the UK, and Switzerland have taken to reduce the pressure on their exchange rates and get their countries exporting again,” Dr Norman said.
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