Reneging on Reserve Bank Act raises serious concerns

The Labour Party’s decision to renege on its commitment to the multi-party consensus on the Reserve Bank Act raises serious concerns says Business NZ.

Labour Leader Phil Goff today announced his party was withdrawing from the consensus which has been in force for 20 years.

Business NZ Chief Executive Phil O’Reilly said the destruction of the consensus will raise questions internationally about New Zealand’s financial stability and its soundness as an investment destination.

“It undermines international trust in the stability of the New Zealand’s economic environment which has been painstakingly built up over the last two decades.

“The decision to ditch the consensus is based on a fallacy – that our monetary policy is the root cause of our often high and volatile currency.

“In fact the root cause of the problem is our unproductive economy which is failing to attract investment inflows and is instead attracting speculative inflows.

“A stronger New Zealand economy – with more business growth and innovation and a less bloated government sector – would be far less vulnerable to exchange rate pressures.

“Monetary policy requires the backing of a policy environment where the productive sector is facilitated, not hamstrung. This means things like less wasteful government spending, lower tax and less costly regulation.

“This is where the action needs to happen to get a stronger economy so we can get exchange rates under control.

“Reneging on a sound institution that has continually delivered control of inflationary pressures is a regrettable move.

“It raises the possibility of sending mixed messages to the Reserve Bank.

“Instead of giving a clear direction to focus on inflation, this would encourage the Reserve Bank to make trade offs between policy areas, politicising the institution and in effect giving it the power to act as an alternative government.”