Labour's Andrew Little accuses Key of using 'megaphone diplomacy' on the RBNZ over interest rates; Key accuses Labour of hypocrisy

Labour's Andrew Little accuses Key of using 'megaphone diplomacy' on the RBNZ over interest rates; Key accuses Labour of hypocrisy

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."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

15 Comments

Comment Filter

Highlight new comments in the last hr(s).

I'm glad the prime minister has so much respect for the serious questions being raised.

I'm just glad he promised not to be arrogant 

Little if you want to survive the next election you better come up with answers not just play the mouthy dummy.  If you want your party in the hot seat next time, you have to prove you have solutions, not just poo-poo the other other guy.  last time i say this out loud, so pay attention.

Agree

C'mon you guys cant you see that John Key is 100% correct ?
We are heading for DEFLATION if we dont recognise the symtoms and signs and deal with it .

Can see a lot of signs and symptoms of very high asset INFLATION that worry me a lot more.

exactly.  at some point the bills need to be paid, better controlled deflation than ass sales or Grexit scenairos... Remember Pope John the Infallable said our overseas debt was why we had to sell off good assets because private citizens bought too many TV's.

Cowboy, we need deflation as most producers are suffering under a cost structure that is making them very uncompetitive. Only by reducing these costs can businesses recover and then expand productiion. Without a correction in costs business will contract. Inflation will not be a winner for export oriented commodity producers, with their backs already against the wall.
 This year my banker tells me has been another stellar year for on farm costs.

I am at a loss here, I just dont understand what you mean.  The only deflation that is possible is that of assets, ie the farms so just how you would want deflation if the farm losses 50% of its value while the debt remains.  Energy cannot deflate, it costs what it costs.  materials get less ore rich using even more energy to extract per tonne so that is a double whammy.  Energy to transport, well it takes energy to build a ship and move it.
 

I have been watching that trend for a few years, net result while income was rising profit was declining, it's hard to be optimistic at this point.
 
P.S.
What is NZ if not an export orientated commodity producer.

Indeed just how are TVs productive assets?

Asset inflation but in only some parts of  one sector, housing  in NZ.
just where is the high inflation elsewhere?
How do you set a national policy  for one sub-sector at the expense of many others?
 

A few years ago I had this theory of biflation, which I have been looking at recently, kinda/sorta happened.  I was thinking that prices of crap/not yet landfill would decline, while necessities would increase.  That was more from a consumer viewpoint.  What has actually happened is that the prices of things that consumers consume have been flatish to down, while the underlying assets that produce necessities have risen.  Farmland, Housing, Energy companies are all way into uneconomic territory.  So there has been the inflation of underlying assets, things which will never register in the CPI because that particular figure is just for propaganda purposes.

perhaps you should have used caps for "asset" as well

You think he is correct to use megaphone diplomacy. Whether the rest is correct or not does noty justify him braking most convenents and expected behaviour of MP's.