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The Reserve Bank's reliance on one tool - the Official Cash Rate - to deliver economic rebalancing is failing, Green Party Co-leader Russel Norman said today.
Reserve Bank Governor Dr Alan Bollard left the Official Cash Rate (OCR) unchanged today at 2.5 percent despite a weak inflationary outlook. The Bank cited modest growth in the housing sector and the Canterbury rebuild as the main reasons for keeping the rate unchanged.
"The Reserve Bank is effectively turning its back on New Zealand's productive sector by leaving the OCR unchanged today," said Dr Norman.
"Lowering the cash rate is one way the Bank can move to devalue the strong New Zealand dollar which is strangling exporters and killing jobs.
Dr Bollard admitted in his statement today that "the high New Zealand dollar continues to undermine export earnings and encourage substitution toward imported goods and services."
"If the Reserve Bank had other tools at its disposal besides the OCR, it could have reduced interest rates today while using other mechanisms to keep rising house prices in check," said Dr Norman.
"A lower OCR would take the pressure off our overvalued exchange rate, help exporters, and assist with economic rebalancing."
Dr Norman is particularly critical of the National Government's lack of urgency to manage the New Zealand economy in light of on-going job losses following the Global Financial Crisis.
"We're losing too many good jobs in our productive sector," Dr Norman said.
"It's no longer acceptable for the Reserve Bank and the Finance Minister to recycle conventional economic wisdom when the Global Financial Crisis has changed all the rules.
"The Reserve Bank needs a broader mandate from the Government to manage the economy in the interests of New Zealanders, not Chicago school economists.
"The central bank of Australia has specific references to full employment and economic prosperity as part of its primary function.
"It's high time our central bank gave more weight to the goal of full employment as part of its vision for a prosperous New Zealand," Dr Norman said.
The Green Party's alternative plan for our economy: