RBNZ U-turn shows monetary settings were wrong

The Reserve Bank’s U-turn on interest rates today shows monetary policy settings were wrong and New Zealanders have suffered unnecessarily through the loss of jobs and having to pay higher interest rates, the Green Party said today.

Reserve Bank Governor Graeme Wheeler today left the Official Cash Rate (OCR) unchanged at 3.5 percent but replaced previous wording about further rate hikes being necessary with the comment that “a period of assessment remains appropriate before considering further policy adjustment”.

“Unfortunately the inflation projections were wrong and, more than that, the OCR isn’t the best tool to deal with inflationary pressures that do exist. This has been to everyone’s cost,” Green Party Co-leader Dr Russel Norman said today.

“Graeme Wheeler hiked interest rates on the expectation that inflation would rise, but that hasn’t been the problem.

“Beyond getting the inflation projections wrong, the bank relied too heavily on the OCR to try to crush illusory inflation by hiking interest rates across the board.

“Higher interest rates have cost jobs, lifted homeowners’ mortgage payments and damaged exporters.

“Mr Wheeler reiterated that the level of New Zealand dollar is too high and unjustified, but primarily that is because he kept hiking interest rates when he didn’t need to.

“The inflation that is in the economy is rooted in house and electricity prices and that pressure remains because National has pursued its failed policy to leave it to failing markets to sort these things out.

“To be fair to Mr Wheeler he has used Loan to Value Ratios to try to limit house inflation, but this has hurt first home buyers more than house speculators.

“What we need is for the Government to play an active role in the housing market and to curb the anti-competitive behaviour of electricity companies.

“We need to review monetary policy so interest rates that take into account the tradable sector and exporters.

"The Green Party has proposed that OCR decisions be by the whole RB board with representatives of the tradable sector, so a broader economic perspective can be brought to bear on monetary policy,” Dr Norman said.