Reserve Bank’s failings hurting businesses and households

New information released by the Green Party today shows that the Reserve Bank has failed to forecast inflation accurately over the last four years meaning interest rates have been kept higher than necessary, hurting businesses and households.

Analysis by the Parliamentary Library of Reserve Bank inflation forecasting versus the actual inflation rate shows that the Bank has consistently mis-forecast inflation over the last four years, resulting in a higher Official Cash Rate (OCR) than necessary to control inflation. Higher cash rates lead to higher home mortgage rates and borrowing costs for businesses.

“Poor inflation forecasting by the Reserve Bank has meant interest rates have been kept higher over the last four years than they’ve needed to be,” said Green Party Co-leader James Shaw.

“Higher interest rates hurt economic activity as businesses face higher borrowing costs, hurting job creation in the economy. They also raise the cost of mortgages for home owners.

“Higher interest rates also hurt jobs. According to the Reserve Bank’s own numbers, a one percent rise in the OCR reduces economic output by 0.5 - 1 percent and increases unemployment by 0.5 - 1.2 percent.

Last week, Tony Alexander, Chief Economist at the Bank of New Zealand, criticised the Bank’s inflation management saying, ‘The Reserve Bank is well away from doing its job of keeping inflation between 1 percent and 3 percent over the business cycle.’

“Here’s further evidence of a need to revisit the Reserve Bank’s governance structure,” said Mr Shaw.

“Our current structure relies too heavily on the judgement of one person to set interest rates – the Reserve Bank Governor. No other country in the OECD gives full responsibility for the OCR decision to just one person.

“The Treasury has previously recommended a review of our single decision-maker feature; a review the Minister of Finance has refused without reason.

“It’s time for Bill English to reverse his position and review the Bank’s decision-making structures given the impact OCR decisions have directly on our economy.”

Reserve Bank graph comparing actual inflation against forecast:

 

Chart sources: Parliamentary Library, Reserve Bank Monetary Policy Statements (MPS), Statistics NZ CPI

Latest Finance Announcements

Story

Budget 2022: James Shaw Budget Speech

CHECK AGAINST DELIVERY Mr Speaker, It has taken four-and-a-half years to even start to turn the legacy of inaction and neglect from the last time t...
Read More

Story

Rising household costs hurting low-income people

The Green Party says the Government needs to do more for those on the lowest incomes as inflation outpaces wage and benefit increases.
Read More

Story

Greens call for urgent action to fix tax system

The Green Party is urging the Government to take urgent action to create a fairer tax system that works for all New Zealanders.
Read More

Story

Urgent action needed to soften inflation blow for low income NZers

The Green Party says urgent action is needed to soften the blow of inflation for New Zealanders on the lowest incomes.
Read More

Story

Liveable incomes and rent controls, now

Stats NZ’s monthly rental and food price indexes released today continue to show that over the last 12 months the essentials have gotten increasing...
Read More

Story

Greens write to PM to call for rent controls

The Green Party has published an open letter to the Prime Minister calling for an immediate rent freeze and for that to remain in place until rent ...
Read More

Latest Economic Development Announcements

Story

PREFU shows efforts to keep us all healthy, now we need to revenue raise

PREFU has given a good insight into what was required to ensure New Zealanders were largely supported to continue work and remain healthy during CO...
Read More

Progressive Tax Reform

In Aotearoa, there is enough to go around. But the tax system has allowed wealth to accumulate with a small number of us, while most of us have on...
Read More

Sustainable business

In the wake of COVID-19, we must empower small businesses in Aotearoa to flourish, create new jobs, and support their local communities. The Green ...
Read More

Sustainable jobs

A sustainable economy means good working conditions and fair distribution of the benefits of our natural resources. As we respond to the disruption...
Read More

High tech economy

A strong manufacturing and technology sector will create jobs in low-emissions industries and ensure we can sell Aotearoa’s skills to the world. Th...
Read More

Story

Green Party welcomes first Wellbeing Budget

“The Green Party is proud to welcome New Zealand’s first Wellbeing Budget to deliver change for New Zealanders,” Green Party Co-leader James Shaw s...
Read More