7. R DOUG WOOLERTON (NZ First) Link to this
to the Minister of Finance
What impact has the Reserve Bank’s primary function to focus on price stability had on New Zealand’s interest and exchange rates over the last 6 months?
Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this
I think that to answer the question completely would be almost impossible, because to do so would assume a series of scenarios about what would have happened if the primary focus were different. At a purely factual level, retail interest rates have risen, on average, by somewhat less than the 1 percent increase in the official cash rate over that period. The trade-weighted index of the exchange rate has risen by 10.3 percent, but much of that will be due to very strong growth in milk prices and a weakening US dollar, and cannot be assigned solely to movements in the official cash rate.
Has the Minister seen any alternatives proposed to change the status quo and widen the primary function of the Reserve Bank of New Zealand Act; and would he agree that a $2 billion tax cut package would do nothing to combat inflation in the short to medium term?
Hon Dr MICHAEL CULLEN Link to this
I have seen many suggestions for alternatives, particularly in terms of widening the focus of the Reserve Bank of New Zealand Act. I am yet to be convinced that that would actually help the Reserve Bank in its work. Certainly, a large tax cut, feeding further demand into the economy, would clearly place further inflationary pressure into the economy, thereby leading to even tighter monetary policy.
Is the Minister concerned that the 20c increase in the exchange rate of the New Zealand dollar in the last year has wiped at least $2 billion from the revenues of the seafood and sheep and beef industries alone; and would he agree that our prospects as an exporting nation are grim if the level of our interest rates continues to be the highest in the developed world?
Hon Dr MICHAEL CULLEN Link to this
There has to be major concern about that rise in the exchange rate of the New Zealand dollar. Clearly, therefore, what it tells us is that the interest rates are probably less important for the success and viability of the exporting sectors than the level of the exchange rate is, despite the obvious connection between the two in terms of the way things operate. I think that underlines the utility of what the Finance and Expenditure Committee is engaged in, which is actually a very thoroughgoing review with some very useful submissions coming in that may well assist in the further development of the operation of monetary policy in New Zealand.
Hon Bill EnglishHon Dr MICHAEL CULLEN Link to this
I do believe that. The member is silly enough to think that he arrived at perfection 18 years ago in his life. At least he should get a mirror, which would demonstrate that that is not true.