Bollard stands up for price stability target

Wednesday 20th October 2010

Reserve Bank Governor Alan Bollard has thrown his weight behind economic orthodoxy and says the current targets of price and financial stability are enough to get through the recovery.

Bollard told Parliament's Finance and Expenditure Committee the existing monetary policy targets and tools available were enough to help revive the country's sagging economic recovery.

Extraordinary measures, such as quantitative easing in the US, brought with it a set of problems that the RBNZ doesn't have to deal with he said.

"We think orthodox tools, and not just monetary policy, interest rates, but macro tools assist in that recovery," Bollard said.

The price target "still appears to have given us enough space to deliver stimulus within the confines of that target".

Bollard called a halt to tightening monetary conditions last month when he kept the official cash rate at 3% amid a slowdown in the property market and a new focus among households in repaying debt.

"Rates are still, by New Zealand's standards, very, very stimulatory," he said.

Bollard brushed off suggestions the bank may have to expand its range of tools to meet these targets, and said the OCR should be capable of meeting the bank's goal of keeping annual inflation between a band of 1% and 3%.

"I'm not feeling in an uncomfortable position at all - we do have the tools and powers to move against asset bubbles should they arise," he said.

When questioned about the bank's ability to intervene in foreign exchange markets, Bollard said New Zealand doesn't have to ability to make a long-term difference to currency markets.

The bank watched the Bank of Japan's and Swiss National Bank's actions earlier this year and he said those institutions will probably take a substantial loss on their interventions.

Bollard said he expects consumer spending to pick-up, and help underpin the recovery, when confidence returns, the labour market improves, and producers finish deleveraging and resume spending to take advantage of strong commodity prices.

The Reserve Bank hasn't seen much impact from the increase in consumption tax at the start of this month, Bollard said.

Businesswire.co.nz

Comments from our readers

No comments yet