PM says no to Winston Peter's Reserve Bank plan

Prime Minister John Key is satisfied the Reserve Bank’s focus on price stability is "on the right track".

New Zealand First wants a change to the Reserve Bank Act, in order to remove the focus on inflation targets and look more closely at the "over-valued" exchange rate.

The party commissioned a report from economic analysts BERL, which concluded an amendment was needed in order to "benefit New Zealander’s lives".

Mr Key says he will not be voting for the bill if and when it comes up in parliament.

He says the government is required to effectively review the act before Graeme Wheeler takes over as the new Reserve Bank governor.

Mr Key says a briefing in cabinet on the issue today has revealed a number of changes which might be made. The new policy targets agreement was signed this morning by Mr Wheeler and finance minister Bill English.

“What I can say is that any changes are very modest. We have effectively reviewed this and we’re comfortable we’re on the right track.”

He has given assurance the current emphasis on price stability and inflation will not be changed.

“We won’t change the emphasis on price stability – the general advice and the general agreement is that the settings are about right.

"There are some very minor changes.”

He disregards a suggestion by JB Were head of investment strategy Bernard Doyle that the Reserve Bank should regard the New Zealand economy as being in serious danger of becoming financially unstable.

Mr Key admits the high kiwi is affecting exporters who export goods solely in US dollars, but says the strength of the dollar reflects the international confidence in the New Zealand economy.

“To say New Zealand economy is unstable is nonsense.”

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The PM is right.


Just as Don Brash was right to keep interest rates high during the Asian financial crisis when everyone else was cutting rates?


No surprise here.

Why would you close a rort down in the money markets, when you're one of them..

A financial transaction tax would be another alternative to driving the parasitic speculators away from our economy.

Its so obvious whos winning out of these illogical constraints the Reserve Bank in operating under. The banks & money men. Be honest with yourself, and ask who is doing well in this economy.

Youd be kidding yourself if you think its anyone other than the money men, and Jonkey is one of them. Such one dimensional stuff.


Very good idea. That would keep the dollar at its natural value.


And would also doom our economy to a dearth of external investment. A retarded idea unless every other country does it. We'd be committing economic suicide


Richard S you are so right unlike the dinosaur above yours... you always have to ask the question who benefits and by how much? and you'll find your answer. Anyway what's the point of price stability when prices are too high relative to wages anyway... this Government is in big trouble, prediction - off to the polls sooner than later.


Well at least John key is capable of reading something...But then I doubt mr banks featured in the report.


Shows how devoid John Key and the RBNZ are of ideas how to grow the NZ economy and increase employment.

Bring back Don Brash and let's have a few more double dip recessions. They are good for keeping inflation under control and keep the RBNZ governor in his job but good for nothing else.


Calling what BERL did an economic report is a bit rich, a 100 level economics student would be able to discredit it.

The simple fact is that the reserve bank, in providing price stability is also maximising output in the long run. Devaluation only provides a short term gain for a favoured sector at the expense of the stability of the rest of the economy.

I think Winston and BERL need a good lesson in the new keynesian (rational expectations robust) phillips curve before they go opening their mouths again


So you think the credit growth and house price inflation of the last 10 years is price stability?


I believe overseas investors are now targeting the Auckland housing market. They have to buy NZ dollars to do this, pushing up the exchange rate.
The Reserve Bank are impotent or do not have the tools to control Auckland's house price frenzy.
Our politicians will not do anything to slow it down as most of them have numerous rental properties.
If the Reserve Bank reduced interest rates now to reduce the exchange rate, then house prices will go even more ballistic.
The only way is for the government to regulate mortgage lending and bring in a capital gains tax immediately and then reduce interest rates.
If the exchange rate is not brought down, then unemployment will get even worse.
This is a classic case of politicians putting self interest and politics ahead of the common good for all NZ.


RAR - Reserve Asset Ratio - The RBNZ has the means but not the will to impose strict limits on borrowings on houses.


Very worrying that JK displays such a closed mind.
Those who are more open to examining the reserve banks' powers are largely agreed that the RB's powers are out of date.
What JK needs to understand is that control of inflation was important in those days,whereas lack of growth is now the main concern of thinking people.
No wonder we are flatlining with this attitude from our PM.
Bring back Don Brash!


right on, a very real worry
a fundamental truth,

"you always listen to the other fellows point of view, he just might be right, only a fool believes he has all the answers"

are we being governed by a fool?


If you want a low dollar be like Greece you will achieved it in no time! All you fools don't appreciate the success of the economy you are in the rest off the world would be envious. Better too struggle with a strong dollar than a weak one


Typical peice of Peters ill thought out populist rubbish, and judging by the reactions of some contributors the usual "yes thats right it is all a big conspiracy approach byt the rich and the politicians". I seem to recall it was Peters who also was saying the RB should be focussed on employemnt growth as well, because at the time it was the populist thing to talk about, he is nothing but an opportunist band wagon jumper. Completely agree with above comment, get your negative heads out of the sand and realise that thanks to consistency from the RB over the last 30 years, not knee jerk populist flavour of the month stuff, the NZ economy has weathered a major world economic meltdown in largely good shape, pretty darned impressive actually for a tiny little export dependent economy at the bottom of the world. Pretty certain had we travelled with the Winston "lets just say what everyone wants to hears stance" over the last 30 years we would well and truly be the Greece of the South Pacific. Some of you have very short memories, cast your mind back to when Peters was Treasurer in the first MMP parliamant, funny but he did absolutely nothing in the role and indeed defended what we have now, he totally lacks substance and credibility. In short he is great at making noise but actually doing anything, well different story entirely.


NZ is very lucky to have been an exporter, and a FOOD exporter during this crisis...lay the credit where it's due!
No monetary policy has saved our bacon since 2008, simply the rural heartland doing what it does best. Of course it's struggling with the high dollar now, so expect a slight depression in available cash soon...


Greece had to borrow so much in recent years because it couldn't devalue its currency to remain competitive - becuase it has the Euro, which some commenters one here don't even realise!

Here in NZ we can do stuff to devalue our currency and reduce reliance on overseas lenders (not just cutting the OCR) but we choose to keep our head in the sand not do it!

We are living beyond our means as a country and keeping a strong currency while running a blance of payments deficit just means we will wake up one day and realise we are hugely in debt and nearly everything is foreigned owned. Serfs in our own country!


In the early 1990s NZ was a world leader with inflation targeting being the principal role for monetary policy. Nearly 20 years later, politicians on the right are stuck in a time warp and refuse to recognise that fundamental change in monetary policy is required. We must look beyond simple tools (OCR) and single targets (inflation). The tradable sector, housing and employment must also be considered.

Anonymous 9’s suggestion that "in providing price stability [the RBNZ] is also maximising output in the long run" misses the point. Some of us want price stability; but just don't think that it should only come about though changes in the OCR. If the RBNZ had more tools it could reduce upward pressure on the exchange rate and keep interest rates and inflation low. For example if there were tools to raise minimum deposits on houses/capital gains taxes this would enable property bubbles to be reduced and targeted without raising interest rates (which pushes up the dollar and hurts the tradable economy).

Anonymous 11 suggests that "overseas investors are now targeting the Auckland housing market", which pushes up the exchange rate. I doubt it's material since the currency transactions overwhelm both trade in goods and services and housing.

WTO data has NZ annual imports and exports worth about USD $50 billion in 2009. The RBNZ has the total NZ housing stock worth USD $490 billion in 2012.

The Bank of International Settlement’s has the DAILY spot-currency transactions at USD $21.6 billion. This means it would take less than 3 days to buy all NZ’s imports and exports, and 23 days to buy all NZ housing! Given only a small traction of total housing stock is for sale, this USD $21.6 billion a day must be to totally underrated to anything real like exports and imports.

99% of currency transactions are unrelated to NZ being a trading nation and allowing businesses and consumers to plan for certainty with stable interest and exchange rates. This 1% needs a new monetary policy.


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