New Zealand First leader Winston Peters used Question Time yesterday to take patsy questions about his Reserve Bank Amendment Bill from one of his MPs.
He then filibustered to keep the Bill alive.
He’s singing the same silly song as Labour’s David Parker who also thinks the Reserve Bank has failed.
. . . The RBNZ had failed to stop the credit boom of the mid-2000s, despite raising benchmark interest rates to a high point of 8.25 percent before the global financial crisis in 2008. . . .
Is this the same David Parker who was not only an MP but a Minister in the government in the mid-2000s?
That’s the government which contributed to high interest rates with high public spending and policies which fostered debt-fuelled consumption.
Both Peters and Parker want a lower exchange rate.
Both are wrong in thinking mucking about with the bank’s role in targeting inflation will achieve that without creating a whole lot of other problems.
The Visible Hand in Economics explains a persistently high real exchange rate isn’t the fault of monetary policy and the RBNZ:
A persistently high real exchange rate tells us something structural is going on in our economy – it could be a sign of a government sector that is “too large”, poor domestic competition, a excessively low savings rate relative to investment opportunities in a country, or some mix of similar issues. As a result, this has to do with competition policy, tax policy, government transfers, and the allocation of government services – but nothing to do with the Reserve Bank keeping price growth at 2%pa. Remember, it isn’t just an issue of too much credit being offered – but too much being borrowed by people domestically who wish to investment and consume.
Remember the exchange rate is a price – it is a “signal” of real imbalances rather than the cause. Remember, it hasn’t been the “consumption” of cars, TV’s, and baseballs that has been excessive – it has been our “investment” in housing stock prior to the crisis. Remember that working for families was a large transfer to the middle classes – which helped to smooth income inequality, but also would have pushed up house prices and could have lifted the real exchange rate by increasing demand for non-tradables … in fact the more effective the programme has been, the larger this impact would have been.
The high $NZ – $US exchange rate does erode returns for exports but neither Peters nor Parker have the right prescription for helping that.