6. Hon DAVID PARKER (Labour) Link to this
to the Minister of Finance
Does he agree with the Prime Minister that New Zealand’s monetary policy is “best practice”?
Hon BILL ENGLISH (Minister of Finance) Link to this
Yes, not that that means necessarily the Reserve Bank has made, in retrospect, the ideal decision in every case, but that view that New Zealand’s monetary policy framework is best practice was confirmed by, I think, five different reviews under the previous Government as well as our own.
What changes to monetary policy and Reserve Bank powers is he proposing?
We are not proposing significant changes, because we do not believe that such are required. What has happened is that what is now called macro-prudential policy has become an important part of the mix of tools available for determining monetary conditions. The New Zealand Reserve Bank has been something of a world leader in the transparency of its macro-prudential approach.
Has the Minister seen yesterday’s report by Fran O’Sullivan, which said that “a bizarre alternative reality has emerged which has resulted in Mr English saying New Zealand is a ‘safe haven’ ”, and “New Zealand exporters do not need to see the currency get so out of whack with the underlying reality that this is no longer a ‘safe haven’ for them to operate from.”?
I think the bizarre alternative reality is what we saw happen in Washington over the last couple of weeks and what we see happening in Europe, where both of those areas are following policies that are devaluing their currencies quite considerably. Of course a high dollar is difficult for exporters—we would much prefer the dollar to be lower—but there is no obvious monetary policy tool that could achieve that.
David BennettWhat reviews of monetary policy have been conducted over the past decade, what did they conclude, and what changes occurred as a result?
There have been number of reviews of monetary policy. The first, in 2000, was by Professor Lars Svensson, who found that our monetary policy is entirely consistent with best international practice. The most recent review was undertaken by the Finance and Expenditure Committee in 2008, under Charles Chauvel. It found that New Zealand’s monetary policy approach is standard among small, open, developed economies and is regarded by our advisers as world best practice. In fact, no changes have been made as a result of four or five reviews over the last 10 years, and that is because no obvious changes can be made.
Has the Minister also seen reports from exporters like Rakon, recently, and industry bodies like the New Zealand Manufacturers and Exporters Association calling for substantial changes to monetary policy, and is his Government’s inaction in the face of those calls why Fran O’Sullivan said: “Key is playing the old Pontius Pilate line, saying there is nothing the central bank can do to lower the dollar.”?
Not only have I seen those reports but also I have discussed this matter with any number of exporters. When they are asked just what changes they want to the monetary policy regime, I have found that the various propositions amount to small wording changes, which anyone who knows about monetary policy would say do not make much difference to the practical conduct of monetary policy. We would prefer a lower exchange rate. The world is not delivering that to us, so we have to get on with being a very competitive economy so that our exporters can do business profitably.
Is the Minister concerned or embarrassed that in the same article, Fran O’Sullivan said: “But the Prime Minister’s memory is faulty. Four years ago, Key was singing a different tune when he bailed me up at an Australasian power-brokers conference in Sydney. Back then Key—at the time National leader—argued the New Zealand economy couldn’t sustain exchange rates at US74c.”?
No, not at all. The fact is that the exchange rate has reached levels I do not think any of us anticipated. That simply shows the size of the challenge this economy has in becoming competitive enough to create jobs and incomes. The alternative of more Government spending, higher taxes, and more debt is a recipe for a much worse outlook for exporters, not a better one.