Today’s announcement from the Reserve Bank states that inflation is still below its target band of 1-3%. It says:
“Inflation remains subdued and is currently just below the bottom of the Reserve Bank’s inflation target range. This mainly reflects the impact of the overvalued New Zealand dollar. The high currency is directly supressing inflation on traded goods, and is undermining profitability in export and import competing industries. At the same time, the labour market remains weak and fiscal consolidation is dampening growth.
The high and overvalued dollar keeps import prices down so consumers benefit, but kills exporters who must provide for our economy’s future. That is the main point being made to the Manufacturing Inquiry set up by Labour, Greens and New Zealand First after the Government blocked a select committee enquiry into the sector. The Reserve Bank’s obsession with the very different problems of the 1980’s means that as a country we are eating our seed corn.
The other people who benefit are currency speculators and money market dealers, which explains why so much media comment comes from that sector. The unchanged 2.5% interest rate may be a record low for New Zealand, but it is still well above the 0.0-0.5% in the major financial markets. While the New Zealand dollar stays high, it is a guaranteed one-way bet for the speculators. The Reserve Bank’s announcement pushed the dollar up half a cent against the US dollar.
But the Reserve Bank doesn’t want to debate the issue with anyone who considers it should run a more balanced monetary policy, as other countries do. We are told the Governor will address the Canterbury Employers and Chamber of Commerce on growth, followed later by Business NZ. These organisations are the result of merging the old Employers Association and the former Chambers of Commerce, and now mainly represent now domestic business. Expect the same old same old “nothing we can do.”
For a real debate the Reserve Bank Governor should front up to the Manufacturers and Employers Association, who represent mainly exporting manufacturers.