Winston Peters' report wants halt to economic booms
A new report wants the Reserve Bank to put a halt to economic "booms" by creating a more competitive and less erratic exchange rate.
The New Zealand First commissioned BERL report evaluated the Reserve Bank Act alongside NZ First's Reserve Bank of New Zealand (Amending Primary Function of Bank) Amendment Bill.
Report authors Kel Sanderson and Dr Ganesh Nana concluded an amendment was needed in order "to benefit New Zealander’s lives".
They came up with three main reasons for change:
- The present Act’s purpose is redundant.
- An amended Act is needed to grow our economy.
- An amended Act is needed to halt financial failures.
The authors believe the current primary function of controlling inflation is no longer as important as it was when the Act was introduced in 1989, at a time when the world’s inflation was at 24% and New Zealand’s was 7.5%.
In 2011, inflation here was 2.3% – lower than world inflation.
BERL says instead of encouraging efficient production of more goods and services, the Reserve Bank is holding interest rates at a 2% to 3% margin above the average rates in Australia, the US and Britain.
This encourages people to buy New Zealand dollars to earn higher interest, which increases our exchange rate and makes locally made goods more expensive and less competitive in world markets.
“This should make sections and housing more affordable. The land didn’t suddenly get more valuable, there was more mortgage money chasing it.
"We will not have a future boom where we can be persuaded by the banks to again take on increasing mountains of mortgage debt.”
But the report warns the changes would have a one-off increase in the price of imports.
The exchange rate is likely to be about 10% lower, which would increase the cost of imports.
New Zealand First leader Winston Peters has, predictably, welcomed the so-called "independent" report.
“BERL clearly states our private member's bill, which would give our dollar its true value, will make lives better for New Zealand workers by increasing incomes and assisting business growth,” he says.
“We are a small economy which attracts ‘hot money’ from foreign investors which pumps up our interest rates.
"Our bill would largely eliminate the environment which allows this to flourish.”