Federated Farmers is calling for the OCR to be held to keep the dollar low.
The problem is that, with the Christchurch rebuild on the horizon and GST set to rise soon, it’s likely that we’ll see some significant short term inflation.
But hiking the dollar won’t hold inflation back for long. In fact all it will do is increase the differential between our rates and the rates of other currencies.
And that will make us a debt target as investors seek the best returns they can get.
Which, ironically, leads to the kind of debt-driven inflation we saw with the last housing boom.
In the last few decades we’ve shifted our economy from benefiting the productive sector and working Kiwis to benefiting speculators, the finance sector and foreign investors shipping profits back home. And our strict monetarist policy has been a major driver of this shift.
It’s time we looked at better ways of targeting inflation in the sectors it occurs rather than relying solely on the cash rate.