Tinkering will not boost economic growth

Don Brash - National Finance Spokesperson

The biggest danger in changing what was a perfectly satisfactory agreement on inflation control is that people may be fooled into thinking it will boost economic growth – and it will not, says National’s Finance spokesman, Don Brash.

“The Finance Minister is trying to deceive the business community into thinking that the Reserve Bank has been inflexible in the way it has operated monetary policy in recent years, and that the new Policy Targets Agreement will produce a markedly different approach.

“This is absolute nonsense.

“The international expert whom the Minister himself commissioned to do a detailed assessment of the way monetary policy has been implemented in recent years concluded that “the Reserve Bank’s current conduct of monetary policy is entirely consistent with the best international practice of flexible inflation targeting, with a medium-term inflation target that avoids unnecessary variability in output, interest rates and the exchange rate.”’

“Given Dr Cullen’s own very limited knowledge of monetary policy, how on earth can he claim that the Bank has been too inflexible?

“The unavoidable conclusion is that the Minister wants the new Governor to deliver a higher average rate of inflation. This will do nothing for faster economic growth, and will inevitably lead to higher interest rates.

“I fail to see how that can be a change for the better,” said Dr Brash.

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