07 March 2007
Media Statement for immediate release
BERL calls on Reserve Bank Governor to hold his nerve
Independent economic researchers BERL called on the Reserve Bank Governor to not raise the OCR tomorrow.
“The Governor should continue focussing on the needs of the wider economy and, in particular, the export sector and
should resist calls from those narrowly focussed on taming excesses in the housing market,” said BERL Senior Economist
Dr Ganesh Nana. BERL suggests tomorrow’s Monetary Policy Statement include the following points.
1) No increase in the OCR.
2)
3) A strongly-worded statement from the RB that the medium term outlook for inflation remains well within the 1% to
3% range as specified by paragraph 2b of the Policy Targets Agreement (PTA). Yes, some inflation measures are elevated,
but all are heading in the downwards direction and, on average over the medium term, there is no reason to expect
further increases in the OCR.
4)
5) A similarly strongly-worded statement that it is neither the RB’s role, nor the function of monetary policy, to
control house prices. The RB remains focused on maintaining a stable general level of prices as specified in paragraph
1a of the PTA.
6)
7) Commentary stressing the importance of non-housing sectors of the economy. Those narrowly focussed on the
housing sector risk overlooking the long-term damage to the economy caused by sacrificing the NZ export sector in order
to rein in the excesses of the housing market.
8)
9) Advice to the Minister that should he wish the housing market to be the focus of the RB, then:
10)
a. a revision of the PTA incorporating a properly specified house price inflation target would be required, perhaps
also involving amendments to the RB Act; and
b.
c. most importantly, the RB would need to be empowered to use another policy instrument or tool, as the OCR alone
will not succeed in achieving a house price inflation target.
d.