Deflation shows need to reform Reserve Bank's tunnel vision mandate

Prices dropped in the last three months of the year while the housing market took off and the dollar remained stubbornly high, showing the need for monetary policy reform, says Labour’s Finance spokesperson David Parker.

“Deflation in the last quarter shows inflation is no longer the main problem. The high exchange rate that is crippling exporters and costing jobs is.

“Meanwhile the housing market is taking off again, meaning the Reserve Bank is likely to keep interest rates high compared to other countries, which keeps the dollar high.

“Our monetary policy has passed its use-by date. The Reserve Bank has a tunnel vision mandate that requires it to primarily consider the prospect of increasing inflation. This pushes other big issues - our overvalued and damaging exchange rate – down the priority queue

“This is despite unemployment at 13-year highs, a stagnating economy and a $10 billion external deficit, which is worse than every developed country bar Greece.

“National’s economy isn’t working for ordinary New Zealanders. Manufacturing outside primary industries is in trouble and jobs are being cut every week. It’s the high dollar that’s causing this, not inflation. We need to remove the tunnel vision mandate and give the Reserve Bank a 20/20 perspective for the economy.

“Labour has long argued that the Reserve Bank must be able to look beyond inflation and give equal weight to other important issues such as the exchange rate and jobs. That would help our exporters and manufacturers and allow them to create good jobs that pay a decent wage,” says David Parker.