Banking inquiry submitters say money supply needs more controls

www.goodreturns.co.nz

Friday 4th September 2009

A common thread through several submissions to the Opposition's banking inquiry was the need for new regulatory controls of the money supply.

The Manufacturers and Exporters Association told the parliamentarians that the official cash rate needs to be "augmented with a monetary volume control mechanism" to control the money supply along with price.

The comments echoed those of the Productivity Economic Council in yesterday's hearing, which said high interest rates had previously encouraged capital inflows from offshore, driving up the exchange rate and worsening the balance of payments.

The Council of Trade Unions said New Zealand needed to reduce its reliance of international funds, and also suggested policy makers look into regulating both the price and quantity of the money supply.

Ganesh Nana, chief economist at research company BERL, also told the committee New Zealand's monetary framework needed an overhaul to regulate the price and volume of money.

Committee chair and Labour Party finance spokesman David Cunliffe said the submissions reflected concerns about the effectiveness of the official cash rate as a policy instrument and could hinder the ability of exporters to help rebalance the economy.

Yesterday, Kiwibank's Sam Knowles told the committee he did not believe the big four Australian banks were "rorting" New Zealanders, rather they were maximising their profits from existing customers, while his bank was offering more competitive deals to try and attract new clients.

Federated Farmers also made its submission yesterday, and called for the central bank to continue monitoring the banks' performances in passing on movements in the OCR and publish its findings on a regular basis.

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