MEDIA RELEASE

4 August 1999

Helen Clark Creates Uncertainty Over Monetary Policy

Treasurer Bill English said today that Helen Clark's comments on changing the Reserve Bank's Policy Targets Agreement (PTA) created uncertainty over monetary policy and could unsettle the financial markets.

"Ms Clark has raised the issue of changing the PTA. The agreement is negotiated between the Reserve Bank Governor and the Treasurer with the aim of keeping the exchange rate competitive.

"Her comments raise more questions than they answer. She does not indicate how the Reserve Bank would be expected to maintain a competitive exchange rate.

"There are many difficulties in even identifying what a competitive exchange rate is, let alone maintaining the exchange rate at that level. It is not clear whether she is proposing targetting the exchange rate - a policy that failed dramatically in Asia - or perhaps implementing capital controls. There are also trade-offs between inflation and the exchange rate that need to be considered.

"It is concerning that Labour is making comments that simply create uncertainty and could unsettle the financial markets and international investor confidence in New Zealand.

"One of the key pillars of the New Zealand economy is the floating exchange rate. We have seen an orderly adjustment in the exchange rate over the past two years, which has helped the economy adapt to the Asian crisis. We would not like to see this changed," said Mr English.

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