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RBNZ inflation focus has hurt exporters, says Cullen
July 3rd, 2008
Finance Minister Michael Cullen has stirred along a growing debate about the Reserve Bank’s singular focus on inflation, saying he agreed with Winston Peters’ criticism of how inflation targeting and consequently high interest rates had disproportionately hurt exporters.
Responding to questions from interest.co.nz after Associate Finance Minister Trevor Mallard questioned the success of the 1989 Reserve Bank Act in parliament yesterday, Cullen said he agreed there had been difficulties implementing the Act in the last decade.
Cullen said the government was not actively considering alternatives to the Reserve Bank Act, but that he was interested in the recommendations from Parliament’s Finance and Expenditure Select Committee and anything coming out of the Reserve Bank itself.
He agreed the Reserve Bank Act was likely to become an election issue, although it “has been at almost every election since the Act came into force.”
Our questions and his answers (relayed by a media advisor) are republished in full below.
1. Does Dr Cullen agree with Mr Mallard that the Reserve Act ‘89 has not worked well in the last decade?
Dr Cullen agrees that there have been more difficulties in the implementation of the Act over the last decade than there were in the first.
2. Does Dr Cullen agree with Mr Mallard that the government is open to alternatives to the current Reserve Bank Act and the current Policy Targets Agreement?
Dr Cullen has consistently advocated that the operation of monetary policy should be kept under review.
3. What alternatives is the government considering? Do they include widening the focus of the Act away from purely focusing on inflation (with the riders of avoiding instability in other indicators). i.e. Does he want the RBNZ to focus on growth and exports as well as inflation?
At this point the government is not actively considering alternatives. But the government is open to considering alternatives. We await with interest the recommendations of the Finance and Expenditure select committee inquiry and the results of any work undertaken by the Reserve Bank.
4. Does Dr Cullen want the Reserve Bank Act to become a political issue during the election campaign?
It clearly already is and has been at almost every election since the Act came into force.
5. Does Dr Cullen agree with Mr Peters’ criticisms of the Reserve Bank Act.
To the extent that the operation of monetary policy has impacted disproportionately on the exporting sectors.
Tags: Labour, Michael Cullen, National, Reserve Bank, Reserve Bank Act, Trevor Mallard
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July 3rd, 2008 at 3:36 pm
[...] Rates blog (*) (ht Bryan Spondre), Rates blog Email exchange with Dr Cullen (*) [...]
July 3rd, 2008 at 3:56 pm
Wow – impressively quick and to the point responses. I’m glad Dr Cullen also indicates his interest to get the Reserve Bank’s views as well. I think it is, and has always been, an institution with a team of people with extremely good analytical skills and a comfortable degree of independence as well.
July 3rd, 2008 at 4:25 pm
It’s everybodies fault but the governments. We have had high taxes falling productivity and being running deficits for years. Hell’s where we have been going, why are we so surprised when we finally get there.
July 3rd, 2008 at 6:27 pm
here,,,here,andrew
go the truckies,finally kiwis with balls