By Alex Tarrant
Inflation is no longer the bugbear it once was, meaning monetary policy is not a big focus for the government, which will turn its attentions to issues outside the Reserve Bank's realm, such as productivity, trade, and building confidence in the economy, Finance Minister Bill English says.
Those calling for changes to New Zealand's monetary policy regime, by seeking more of a focus from the Bank on employment and growth, better not hold their breath. The Reserve Bank had done its job controlling inflation, meaning the onus was now on other players in government and the economy to do their job.
Reserve Bank Governor Alan Bollard's decision to step down in September this year has sparked discussion of whether the transition period to a new governor should also see changes to the Reserve Bank's current single focus on inflation and inflation expectations. The current Policy Targets Agreement the RBNZ has with the government, the Reserve Bank is tasked with keeping medium-term CPI inflation within a 1-3% target band.
It would be naive to think that altering the Bank's Policy Targets Agreement with the government to try and force it to also focus on employment or economic growth would make a difference, English told media in Wellington today. The Opposition Labour and Green parties contested the 2011 general election with a policy to broaden the Reserve Bank's objectives.
"There seems to be some debate about it [the Reserve Bank's role] as if we’ve got a big inflation problem. In fact we don’t have an inflation problem - inflation’s dropping away. We need to get on with more growth,” English said.
“I think they’re fighting the last battle. That was a big issue three or four years ago, the issue now isn’t monetary policy, it’s been quite accommodating. The issue is building confidence and building investment," he said.
“The world’s changed, inflation is not the big bugbear. What we need now is more investment, more savings. Monetary policy’s not a big focus.”
Change the RBNZ's focus?
“It’s naive to think that if you put the word ‘employment’ or something else into the policy targets agreement [that it is] going to change the economy. It’s not," English said.
“The Governor has basically said interest rates are going to be flat for quite a while, who knows how long that’ll go for," he said.
“There are a whole lot of other issues that are much more important around productivity, around getting our resources into the tradable sector, around building investment, getting Christchurch rebuilt, that are much more important than what’s a fairly esoteric debate that’s been had many times in the last 10 years with no change.”
Monetary Policy Committee?
Meanwhile the government had not seen any reason to change the way the Official Cash Rate was set - currently solely by the governor of the bank - to being set by a monetary policy committee.
"If only because we don’t have a whole lot of monetary policy experts around the country," English said.
That had been looked at before as one of the peripheral arguments over monetary policy over the last 10 years, he said.
No more room on inflation front
English's comments come after Prime Minister John Key yesterday also said he was comfortable with New Zealand's current monetary policy framework.
Key was against the Reserve Bank being given more room at the top of its inflation target band, saying inflation ate away at the wealth of those on fixed-incomes.
(Updates with video)
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