Goff announces end to monetary policy consensus
Reserve Bank policy targets don't work, Labour leader Phil Goff said today as he ended a 20-year political consensus on monetary policy.
"Our Reserve Bank policy targets are not well designed to produce a stable and competitive exchange rate, nor to keep interest rates as low as possible," Mr Goff said in a speech to Federated Farmers in Wellington.
The battle against inflation was no longer the most important priority -- growth and wealth creation were equally vital, Mr Goff said.
Farmers were heavily exposed to interest rate movements, and even more so to the exchange rate.
"We export 95 percent of everything our farms produce. When our exchange rate surges, it undermines the competitiveness of our prices in destination markets.
"When the exchange rate falls, the price of inputs like fuel can soar unexpectedly."
But Reserve Bank policy targets did not achieve stability and when faced with a surge of domestic demand the response was to increase interest rates which fuelled more inflows of foreign capital, which might then be lent out, creating even stronger domestic demand.
"So New Zealand's overseas debt increases inexorably, while monetary policy punishes our most productive businesses and first-home buyers -- just about the two sectors that we least want to affect," Mr Goff said.
The official cash rate punished the tradeable sector for inflation in other sectors. It skewed investment away from productive areas of the economy, he said.
"Today I am announcing the end of the consensus around the policy targets and tools of the Reserve Bank. Labour wants to see a step change in our export performance."
He said Labour would be studying options to improve monetary policy.
Labour goals were:
* a stable and competitive exchange rate;
* reduced interest rates for businesses and home owners;
* continued priorities of price stability and low inflation;
* to guard against expectations of price rises.
Mr Goff said how the goals interacted with other objectives would be an important part of Labour's economic policy for the next election.
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Comments and questions5
Truly the dopiest thing to come out of this guy's mouth. Leave this guy in charges and let Labour get used to opposition.
All he is highlighting is that there was truly nothing to the Labour Government beyond Helen aand Cullen and the remaining talentless bunch is lead by an absolute moron.
Funny how being in opposition has made Goff think that he's an expert on the econom.
If the labour party had been so wonderful we wouldn't be in the mess we are in now, but of course with socialists you pay off your mates before you even think about the economy, now all of a sudden Cough is trying to sound sage and economically wise.
Forget it Philly you are playing with the big boys now, people who do know what they are doing, successful people, you know, the kind that your lot tried to tax and criticize out of existance unless they donated big money to you.
Your mob are very scary, ignorant and pathetic, so shut up until you have something interesting to say.;
Go back to your motorbike, with all your moaning mates, and remember the next time one of them has an accident, pay for the treatment.
Goofy knows best- yeah right
There is a case for taking some pressure off monetary policy but unless and until it has some real support from fiscal policy, there is little that can be done without fueling inflation. Gough's comments are like saying we will reduce taxes without addressing the consequences.
Obvious way to reduce NZ dollar volatility is to move onto Ozzie dollar.
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