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

Action

Jeanette Fitzsimon's Memorial

Since her passing, we have been so moved by your stories of Jeanette. Inspiring, challenging, humorous, poignant — endless stories of a life so ric...
Take Action

Action

Local Events

We have activists across Aotearoa / New Zealand who are working hard to build a brighter future for our kids and grandkids. This page lists upcomin...
Take Action

Action

It's time to pay our essential workers a dignified wage

Our essential workers are the heroes getting us through the COVID-19 crisis, yet for too long they’ve been...
Take Action

Action

Join our call to stop funding fossil fuels!

We need to remove all public money managed by the Government from climate-changing fossil fuel industries.
Take Action

Action

Support our Climate Action Plan for bigger bolder climate action

We agree with all five of the School Strike for Climate's demands. Read more and sign the petition.
Take Action

Action

Show your support to end housing inequality

Our essential workers are the heroes getting us through the COVID-19 crisis, yet for too long they’ve been undervalued and many barely....
Take Action

Latest Finance Announcements

Policy

Economic Policy

A Green economy is about better quality of life for people and the planet. Economic success is intertwined with environmental and human wellbeing. ...
See More

Policy

Trade and Foreign Investment Policy

We support fair trade that’s good for economic prosperity, people, and the planet. Trade agreements must respect democracy and state sovereignty T...
See More

Story

Green Budget win backs public sector leadership on climate change

The Greens in Government have today won a significant investment to help move the public sector estate onto clean, renewable energy, Green Party Co...
Read More

Story

Budget 2019 Speech - James Shaw

E te Māngai o te Whare, tēnā koe. Ki a koutou ōku hoa Pāremata, huri noa i te Whare, ngā mihi o te tau hou ki a koutou katoa. 1.         The Wellbe...
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

Story

Wellbeing: We need to change how we see our economy

“The Wellbeing Budget is a first step in changing the way we look at the economy and our place in it”, said Green Party Co-leader Marama Davidson. ...
Read More

Latest Economic Development Announcements

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

Story

Wellbeing: We need to change how we see our economy

“The Wellbeing Budget is a first step in changing the way we look at the economy and our place in it”, said Green Party Co-leader Marama Davidson. ...
Read More

Story

Green Party welcome further efforts to stop tax evasion

The Green Party welcomes further steps to combat tax evasion, Green Party Co-leader James Shaw said today.
Read More

Story

Commencement Speech - Start of Parliament 2019

Mr Speaker, on Election Night 2017, I said that, “New Zealanders have voted for change!” The three Opposition parties that night commanded a majori...
Read More

Story

Green Party Co-leader James Shaw responds to the Government running surplus

The Green Party has welcomed a better than expected surplus, which should allow us to invest in communities and ensure increased wellbeing for New ...
Read More

Story

A Greener way to measure success

Green Party Co-Leaders Marama Davidson and James Shaw have welcomed today’s announcement by Statistics New Zealand that a broad set of indicators w...
Read More