6. Rt Hon WINSTON PETERS (Leader—NZ First) Link to this
to the Minister of Finance
Will the results of the Reserve Bank initiative to pursue “options for alternative instruments” for monetary policy be made publicly available; and at whose behest was the addition of this initiative in the Reserve Bank’s latest statement of intent?
Hon TREVOR MALLARD (Associate Minister of Finance) Link to this
Yes; and the addition of the initiative arose out of discussions between the Minister of Finance and the Governor of the Reserve Bank.
Rt Hon Winston Peters Link to this
Can the Minister confirm that this is new, and will the options for alternative instruments include taking into account the balance of payments, exports, GDP growth, and full employment as equally important elements as controlling inflation, as identified in a Business and Economic Research Ltd study of June 2008; if not, why not?
Hon TREVOR MALLARD Link to this
I think it is too early to anticipate what will be included, but what is clear is that when it was introduced the inflation target was appropriate for the newly independent Reserve Bank of New Zealand to have a single inflation-focused objective. However, the economy has changed a lot in the last 20 years: the major sources of inflation are different, and we have a much more open economy. Over recent years the Reserve Bank has been faced with two quite different monetary policy challenges. For a number of years, under both governors, inflation has been driven by increased domestic demand that stems from a buoyant housing market, fuelled by cheap foreign capital attracted by a stable economy and relatively high interest rates. Now we have inflation challenges driven by record high international prices of food and oil. In both cases the tools available to the Reserve Bank have not been able to address those problems. In fact, in the first case it could be argued that they exacerbated the problem. The Government is open to looking at alternatives that best serve the modern New Zealand economy.
Moana MackeyHon TREVOR MALLARD Link to this
Yes. That is why we commissioned the Supplementary Stabilisation Instruments report from Treasury and the Reserve Bank. When it became clear that it would not be possible to get political consensus around any of those proposals, we invited the Finance and Expenditure Committee to conduct an inquiry into monetary policy, involving all political parties. But at every step the National Party, and especially Bill English, have done all they can to derail and disrupt attempts to obtain political consensus around this very important economic issue.
Rt Hon Winston Peters Link to this
Will the Minister confirm what New Zealand First has said for a long time: that the Reserve Bank Act simply does not work for this economy; and is he aware that the Bank of England recently allowed inflation to exceed its targeted range, stating that an attempt to counter a rise in food, energy, and import prices would result in “unnecessary volatility in output and employment”; and given our Reserve Bank estimates that 90,000 New Zealanders must lose their jobs over the next 3 years if we are to meet the inflation targets by using tight and high interest rates, does he accept that 90,000 job losses, with possibly 250,000 dependants losing their income, and 1 percent to 1.5 percent GDP growth are merely collateral damage?
Hon TREVOR MALLARD Link to this
My position on this is that the Reserve Bank of New Zealand Act has not worked as well in the last decade as it did in the first.