Exporters Irked by Nat’s Monetary Policy Stance

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.

4 Responses to Exporters Irked by Nat’s Monetary Policy Stance

  1. Truthseeker says:

    hp: Government deficits are inflatonary.

    Government spending with surpluses used to pay down debt or save for a rainy day are not necessarily inflationary at all if combined with a montary policy that uses interest rates to control inflation.

    Similarly, tax cuts are inflationary if they result in deficits. This is where Bush went wrong in 2001 and is a major reason why the world now has heartburn. tax cuts would also be inflationary if they are big enough to allow people to bid up the prices of things – like houses. Less so if they are modest and introduced over time.

    Like

  2. Pete says:

    Walley is well named. He has only got a couple of members and he doesn’t represent exporters or manufacturers. He should have been a trade unionist silly pommy git

    Like

  3. JC says:

    “Walley is well named.”

    Looks like it. The Govt has doubled our Core Govt Expenditure, gobbled the economy and let inflation loose. That means we have murderous tax and interest rates that prop up the dollar and kill off the export sector.

    That means we have to kill spending and control tax and inflation so the dollar can drop.

    JC

    Like

  4. Jacko says:

    Pete – the surest sign that any argument you might have to counter proposals made by John Walley is that you played the man, not the ball. How would you change things for the better, for the whole of New Zealand’s economy?

    JC – I agree with your observations, however, for a long run solution, and while part of it, isn’t “kill spending and control tax and inflation” just repeating part of a policy-cycle that made us as vulnerable as we are? So ditto above?

    Jacko

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: