Reserve Bank opts for ideology over jobs

The Reserve Bank decision to keep the Official Cash Rate (OCR) unchanged today will hurt the productive economy and result in further job losses, the Green Party said today.

In its statement today, the Reserve Bank admitted that inflation remained subdued and was below the bottom of the Bank's inflation target range. The Bank also admitted that the overvalued currency is "undermining profitability in export and import competing industries".

"By not cutting the OCR today, Graeme Wheeler is helping to wreck our export and manufacturing sectors and the valuable jobs they create," Green Party Co-leader Dr Russel Norman said.

"A lower OCR would have taken pressure off our overvalued exchange rate, helping exporters and manufacturers who compete with imports.

"Graeme Wheeler needs to roll up his sleeves and start fighting for New Zealand's productive economy.

"Simply talking about our overvalued dollar is no longer enough. In fact, the dollar rose even further after his announcement today."

Dr Norman today released a Reserve Bank paper that shows that the Bank has been discussing complementary tools to the OCR since at least May last year. The Bank believes introducing loan-to-value ratios would reduce house price inflation.

"The Reserve Bank has known since at least the middle of last year that complementary tools, like loan-to-value ratios, could be used to control house price inflation which then give the Bank greater room to cut the OCR to help rebalance the economy and create jobs," Dr Norman said.

"The Reserve Bank can use the multiple tools at its disposal to control house price inflation while lowering interest rates to bring down the dollar and give exporters a break.

"Other central banks are following such smart policies, but New Zealand seems to have one of the most ideologically rigid central banks in the world, costing our economy exports and, most importantly, jobs."

Link to Reserve Bank document "Alternative Policy Instruments":
http://www.greens.org.nz/sites/default/files/reserve_bank_alternative_policy_instruments_may_2012.pdf