Reserve Bank objectives out of date

The objectives of the Reserve Bank are out of date, and reflect an era when inflation, rather than growth and overseas debt were New Zealand’s main economic concerns, Labour’s Finance spokesperson David Parker says.

“Comments in a speech by the Reserve Bank’s assistant governor show the Bank needs a wider set of objectives, and more tools to achieve them. In his speech, Grant Spencer says one lesson of the global credit crunch was that global monetary policies contributed to it.

“He points out that ‘prudential policy’ - the way the Reserve Bank supervises the financial system - should look beyond risks to individual banks as well as take account of ‘macro financial risks’,” David Parker said.

David Parker says the current Reserve Bank Act is written as if the only ‘macro financial risk’ the Bank should worry about is inflation.

“In fact the economy can be made unstable by other factors. At the moment, the gravest macro risk is that New Zealand has an enormous overseas debt. That gets worse when our dollar is persistently over-valued. This is why Labour wants the Reserve Bank’s objectives widened.

“The Current Reserve Bank Act is out of date and written for an era when growth and overseas debt were not seen as important as inflation targeting. That era has gone, and change is needed,” David Parker said.