More Support for Reserve Bank Act Review

Media Release
27 April 2007

More Support for Reserve Bank Act Review - Wood Processors Association

Following, yesterday's hike in the OCR to 7.75%, the Wood Processors Association has once again added its voice to calls for a review of monetary policy and the Reserve Bank Act.

"The Reserve Bank's narrow focus on inflation is crippling strategic export industries, particular timber. As stated yesterday by New Zealand First spokesperson Doug Woolerton, it is high time to consider the case for a more flexible monetary policy framework, that enables the Reserve Bank Governor to take the plight of our backbone export industries into account when regulating our economy," says Wood Processors Association Chairman, Dave Anderson.

The timber industry is one of New Zealand's strategic export industries being steadily choked by current monetary policy. The long-term viability of the wood processing sector, which includes sawmillers, panel manufacturers and the pulp and paper sector, is in serious jeopardy thanks to a terminal recipe of painfully high exchange and interest rates. Recent estimates conclude that the industry sector is losing $300m per year due to the high value of the New Zealand dollar which is artificially propped up by current monetary policy.

"The Reserve Bank Act was introduced at a time when inflation was top of mind for policy-makers and politicians. Today's economy has different challenges and requires a more flexible approach. Of course we need to manage inflation, but not without consideration for the export sector that drives our economy," says Anderson.

The exchange rate has sat at approximately 68 cents for the last year (spiking as high as 75 cents) which is about 20% higher than the 10 year average with the OCR, at 7.75% being the second highest in the OECD. The increase to 7.75% is the 11th rise in the OCR since January 2004.

"For month after month after month, policy makers seem to have been willing the exchange rate to fall. It hasn't. In fact, it has kept climbing. At the moment, we are trapped in a hopeless spiral in which the Reserve Bank endlessly chases its own inflationary tail. The Government must act urgently if we are to avoid closures of processing plants and the long-term erosion of our export sector," concluded Anderson.

ENDS

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