By Alex Tarrant
Reserve Bank Governor Alan Bollard says the central bank did not come under any pressure from the government to cut the Official Cash Rate in the run up to today’s move to cut the benchmark interest rate by 50 basis points to 2.5%.
Bollard instigated a meeting with Finance Minister Bill English in the wake of the quake to discuss the RBNZ’s view on monetary conditions and government’s view on fiscal responses. This was a one-off decision due to the state of emergency that had been declared, Bollard said.
Prime Minister John Key said publicly in the week before today’s move that lower interest rates would be helpful for the economy in the wake of the devastating earthquake in Christchurch on February 22.
Opposition leader Phil Goff replied by saying it may have been interpreted that Key could have been signalling to the RBNZ Governor what to do, although Goff conceded it was acceptable to make the general comment that lower interest rates would be good at a time the economy was heading back into recession.
Bollard said the RBNZ “observed and read what the Prime Minister said”.
“Actually he said he read what the markets were saying and repeated that,” Bollard told media at the Reserve Bank this morning.
“We’ve had no pressure from the Prime Minister or the Minister of Finance at all on this matter, so no, we haven’t felt pressured about that. But I would like to say one thing, which is, we have changed our process a little bit this time, given that we are in a state of national emergency,” he said.
“It was my view that we should consult with the Minister of Finance and co-ordinate as much as possible our views on monetary conditions, and the Minister’s views on fiscal responses and other packages in order that New Zealand was getting the best [response] in a co-ordinated way from both sides of the economic agency spectrum, and that’s what we’ve done.
“Now that is unusual, but the decision is entirely mine and the responsibility for it remains mine. We would expect that to be a one-off while this state of emergency lasts,” Bollard said.