Labour's monetary policy worries business

The business community has given a less than enthusiastic reaction to Labour leader Phil Goff's announcement he would make "significant change" to monetary policy, without saying what those changes might be.

Mr Goff yesterday said he was ending a 20-year political consensus between Labour and National on monetary policy.

He argued the Reserve Bank's focus on controlling inflation through interest rates was no longer working and was damaging the wider economy.

Mr Goff said Labour was looking at "significant change" but was not considering abandoning control over inflation as part of the price for those changes.

"Our objective is to have an exchange rate that allows our key exporters to be competitive and, to the extent possible, to reduce the huge levels of volatility and the huge trading in the New Zealand dollar that has been a problem for our exporters."

A Labour government would retain an independent Reserve Bank, but the consensus on targets under monetary policy would be broken.

Mr Goff noted many other countries had a requirement to keep unemployment low, alongside price stability.

"We are not making those decisions at the moment...I am not going to say what specific areas will be changed until we finish the process of looking at the options."

Business NZ chief executive Phil O'Reilly said destruction of the consensus would raise questions internationally about New Zealand's financial stability.

The high rate of the dollar was caused more by an unproductive economy, he said.

Removing the Reserve Bank's inflation focus would result in policy trade-offs and giving it the power to act as an alternative government.

The Employers and Manufacturers Association chief executive Alasdair Thompson said Mr Goff was talking "gobbledygook" without any prescription for achieving conflicting outcomes.

The Council of Trade Unions economist Bill Rosenburg said it was good that Labour was looking at alternatives to monetary policy as there had been too much focus on interest rates.

Finance Minister Bill English dismissed the announcement as irrelevant attention-seeking that would result in no change in Labour policy.

Mr Goff said he would put together a package that better met New Zealand's long-term interests but would not be drawn on areas of change in targets or policy tools.

"We're not saying that we have a miraculous new solution...what we're saying is that the status quo is no longer good enough."