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Goff Says End Of Consensus On Monetary Policy

Fuseworks Media
Fuseworks Media
Phil Goff
Phil Goff

Wellington, Nov 19 NZPA - A Labour Government would make "significant change" to monetary policy, but leader Phil Goff will not say what those changes might be.

Mr Goff said today he was ending a 20-year political consensus between Labour and National on monetary policy.

He argued the Reserve Bank's focus on controlling inflation through interest rates was no longer working and was damaging the wider economy.

Finance Minister Bill English dismissed the announcement as irrelevant attention seeking that would result in no change in Labour policy, though after Mr Goff's speech the dollar fell half a cent against the US dollar.

Mr Goff said the battle against inflation was no longer the most important priority -- growth and wealth creation were equally vital.

"Our Reserve Bank policy targets are not well designed to produce a stable and competitive exchange rate, nor to keep interest rates as low as possible," Mr Goff said in the speech to Federated Farmers in Wellington.

Mr Goff told journalists he would put together a package that better met New Zealand's long-term interests but would not be drawn on areas of change in targets or policy tools.

"We're not saying that we have a miraculous new solution...what we're saying is that the status quo is no longer good enough."

Asked whether he was looking at "tinkering" or major changes, Mr Goff said Labour was looking at "significant change" but was not looking at abandoning control over inflation as part of the price for those changes.

"Our objective is to have an exchange rate that allows our key exporters to be competitive, and to the extent possible, to reduce the huge levels of volatility and the huge trading in the NZ dollar that has been a problem for our exporters."

A Labour government would retain an independent Reserve Bank, but the consensus on targets under monetary policy was broken.

Mr Goff noted many other countries had a requirement to keep unemployment low as a factor, alongside price stability.

"We are not making those decisions at the moments...I am not going to say what specific areas will be changed until we finish the process of looking at the options."

Mr English said Mr Goff's comments did not matter.

"The Government has got a programme under way to rebalance the economy after 10 years of mismanagement. So it is important we achieve that so we can get jobs and investments going," he said.

Labour had held five reviews into monetary policy and changed nothing.

"I suspect that this time around they are just trying to get attention and don't have an alternative either."

Talk of moving closer to the Australian system was a red herring as there was little difference between how it operated and New Zealand did, he said.

One financial analyst said Mr Goff's announcement had "rattled the dollar", but added it should be taken with a grain of salt as his policy proposals had little or no chance of being implemented.

Frustration with monetary policy is not a new event in New Zealand politics.

Labour's last finance minister Michael Cullen looked at a range of different tools the Reserve Bank might use, but nothing was ever implemented.

He also attempted to build a cross-party consensus to change monetary policy, but had no success.

New Zealand First, which is no longer in Parliament, long campaigned for changes to monetary policy.

However when it was in a coalition government with National it made only minor changes to Reserve Bank policy targets.

Reserve Bank governor Alan Bollard has said he lacks the tools to influence interest rates, and worried about the strength of the dollar.

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