David
PARKER

Spokesperson for Finance

14 December 2012 MEDIA STATEMENT

National Left Behind On Monetary Policy

Federal Reserve Chairman Ben Bernanke’s decision to not raise the interest rates until there’s a significant drop in unemployment highlights the limitations of National’s orthodox monetary policy, says Labour’s Finance spokesperson David Parker.

“Ben Bernanke has announced that he will not raise US interest rates until unemployment drops from 7.7% to 6.5%. Under New Zealand’s outdated Reserve Bank Act our Governor can’t do that.

“The Governor said: ‘By tying future monetary policy more explicitly to economic conditions, this formulation of our policy guidance should ... make monetary policy more transparent and predictable to the public’.

“Ben Bernanke’s move has been widely lauded. Unfortunately National has no intention of allowing that to happen here.

“New Zealand’s unemployment rate is 7.3%, just below America’s 7.7% but our Reserve Bank is required to give primacy to inflation-targeting over other important economic areas such as jobs and the exchange rate.

“We need to change that – to do that we must change the Act. National refuses to do that.

“We have an unemployment rate of 7.3% and next year will have the worst current account deficit in the developed world. Despite that our exchange rate hit a five-year high yesterday with the trade weighted index hitting 75.47.

“New Zealand most clearly faces competitive devaluation abroad. The Government is ignoring it at our peril. Job losses and rising international debt are the consequences.

“These are massive structural issues but our Reserve Bank is required to give primacy to inflation, even though it’s only 0.8%. We need to change monetary policy to keep up with the rest of the world. The primacy given to inflation has passed its use-by date. It’s time to take other areas such as jobs and the exchange rate into account as in America.”

ENDS

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