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The Reserve Bank should move to lower the Official Cash Rate (OCR) tomorrow to lower the exchange rate and help rebalance the economy towards exports and manufacturing, the Green Party said today.
A lower Official Cash Rate (OCR) is likely to lead to lower domestic interest rates which, in turn, will take pressure off our overvalued exchange rate, helping exporters and manufacturers who compete with imports.
"With inflation running well below the Reserve Bank's target band, Graeme Wheeler has scope to cut the OCR as a first step to addressing our overvalued currency," Green Party Co-leader Dr Russel Norman said.
"The overvalued New Zealand dollar is hurting exporters and manufacturers who compete with imports - one of the main drivers of massive job losses in this sector.
"We're hoping the new Governor will favour a more pragmatic use of the OCR to address the fundamental imbalances faced by the New Zealand economy, reflected in our worsening current account deficit."
The Ministry for Primary Industries latest Farm Monitoring Report predicts that total income from milk solids is expected to fall 20 percent next year, resulting in a drop in profit before tax of around 57 percent for dairy farmers.
"Our dairy export sector is forecast to be in for one hell of a shock next year," Dr Norman said.
"A lower kiwi dollar would help soften the likely impact of lower dairy prices in one of our key export sectors."
Dr Norman renewed his calls for wider reform of the Reserve Bank mandate and the way the Reserve Bank makes it decisions around the Official Cash Rate.
"No other country in the OECD gives full responsibility for the OCR decision to one person - the Reserve Bank Governor," Dr Norman said.
"This is decidedly antiquated. It leads to poorer decisions - decisions which don't reflect the wider economic interests at stake when the Official Cash Rate is set.
"We'd bring the Bank into the twenty-first century by making the Reserve Bank Board accountable for setting the Official Cash Rate, while ensuring the Board includes representatives from the export and manufacturing sectors.
The Green Party proposal for lowering the high Kiwi dollar:
Ministry for Primary Industries Farm Monitoring Report: