By Bernard Hickey
Labour Leader Andrew Little has accused Prime Minster John Key of over-stepping the boundary of the Reserve Bank's independence on monetary policy on the eve of its March quarter Monetary Policy Statement.
Key told his post-cabinet news conference on Monday that inflation was headed towards zero percent and the Reserve Bank needed to focus on keeping inflation close to its 2% target. He said the Reserve Bank could not raise interest rates given the inflation outlook, but would struggle to cut them given the strength in Auckland's housing market.
Little said on Tuesday it was wrong for Key "to use megaphone diplomacy to advise the Reserve Bank Governor what to do."
Little followed that up with a question in Parliament on Wednesday pressing Key on his comments on interest rates and the surge in Auckland house prices.
"Why did he put public pressure on the Reserve Bank Governor to use his power to not raise interest rates, when the whole point of the Reserve Bank independence is to protect the governor from partisan interference?," Little said.
Key said his views simply reflected what market commentators were saying.
"I did not put any pressure on the Reserve Bank Governor. As I said, it is a matter for the governor," he said.
Key went on to accuse Labour of making its own comments previously about monetary policy and asked if Little really wanted higher interest rates.
"Is the Leader of the Opposition telling us that in an environment where inflation is at 0.8 percent and probably going lower, where our base rates are 3.5 percent, where seven countries in the developed world this year alone have cut interest rates, and where three-quarters of the world have base rates between zero and 1 percent he seriously wants the governor to raise rates,?" Key responded.
Little then followed up with this question: "If he thinks that megaphone diplomacy with the Reserve Bank is OK, why did he not intervene to exempt first-home buyers from the Reserve Bank’s loan-to-value ratio restrictions?"
Auckland housing challenge
Key said previous Labour Leader David Cunliffe had called for the Reserve Bank to change its LVR policy and previous Labour Finance Spokesman David Parker had called for a variable KiwiSaver scheme that meant politicians would be setting interest rates.
Little went on to question Key about the recent surge in Auckland house prices and comments from Bayleys and ASB that new building consents were well below the needs of current population growth.
"There has been an explosion of building activity in Auckland and around New Zealand," Key replied.
"They (the building consents) will happen under a National-led Government that has allowed special housing areas to take place, which the Opposition was opposed to. They will happen because interest rate settings are affordable for New Zealand, which, by the way, the Opposition was opposed to. But if the member really cares about Aucklanders, here is an idea: join with us and vote with us on the Resource Management Act reforms," he said.
Little asked this final question: "Why not just be straight with the people of Auckland and admit there are more people per house than before, it is projected to get worse in the years to come, and his tinkering will only send house prices higher and higher again and again?"
Key responded thus: "It is a matter for the governor, but, in my opinion, raising interest rates at this time is not the right thing to do. But when it comes to being straight, here is the answer: Mark Osborne. Because—guess what—Andrew Little does not know the answer to the question: Winston Peters or Willow-Jean Prime? He does not know the answer."