The NZ Manufacturers and Exporters Association is not impressed by National’s support for the current monetary policy.
The party’s defence of the current system failed to acknowledge the damage the policy had caused to New Zealand’s tradeable sector, association chief executive John Walley said.
The approach used interest rates dictated by the Reserve Bank’s official cash rate to curb demand and influence inflation.
That approach had seen exports dropping from 33% of GDP in 2001 to 22% in 2007.
“What we are seeing at the moment is increasing fuel and commodity prices driving inflation which in turn is holding up interest rates and exchange rates.
“These forces are unlikely to stop any time soon so we need to break the link between inflation and the exchange rate,” he said.
He’s right about the problems but I’m not convinced playing politics with monetary policy is the solution.
Associate Finance Minister Trevor Mallard last week announced that the Government was open to looking at alternative monetary policy settings.
National finance spokesman Bill English said now was not the time to start tinkering with a monetary framework.
The Reserve Bank recognised the effect that international oil and food prices were having and the central bank was not going to strangle the economy because of imported inflation.
“It has been well recognised by government officials and commentators that increases in government spending, poor quality spending and increases in government charges are also stoking inflation domestically,” Mr English said.
“Trevor Mallard would be well advised to focus on these inflation factors, rather than signalling a drastic rethink on monetary policy,” Mr English said.
Quite. I have never been able to understand Labour’s belief that their spending of public money is not inflationary but allowing us to keep more of what we earn would be.
Mr Walley hoped National was making a typical election-year response.
Unless policy changes were made, all that could be expected was more of the same as the trade balance deteriorated and the economic situation worsened, he said.
A more responsible approach to the spending of public money might make a difference without the need to make monetary policy a party political issue.