27 Oct 2012

Greens decry new Reserve Bank governor's approach

4:29 pm on 27 October 2012

The Green Party has decried a speech by the new Reserve Bank governor for failing to reflect the "new economic reality".

In his first speech since becoming governor, Graeme Wheeler said intervening in the currency markets or printing new money is not the way to ease the plight of exporters hit by the high dollar.

Greens' co-leader Russel Norman says Mr Wheeler is stuck in the past if he believes keeping inflation in check is the only way to get a healthy, growing economy.

"He does acknowledge that internationally there have been dramatic changes in approaches to monetary policy and the approach New Zealand is taking is not the international approach any more," Mr Norman says.

"But it's kind of like he feels that when he crossed the border into New Zealand he went back 20 years and so we just have to implement monetary policy from 20 years ago."

Mr Wheeler, who was employed by the World Bank from 1997 to 2010, was living in the United States before returning to New Zealand.

In his speech to an Auckland business audience on Friday he acknowledged the damage the high dollar is doing to parts of the economy like tourism, manufacturing and industries that compete with imported goods, but said the tools available to the bank would do little to lower the currency.

He said the currency's strength reflects international demand for New Zealand's products, with the country's terms of trade being close to a 40-year high.

But he said cutting the official cash rate or intervening in foreign currency markets would have a very short-term effect in lowering the dollar, if they were effective at all.

Mr Wheeler said a more competitive exchange rate is more likely to be achieved by New Zealanders saving more and reducing dependence on foreign borrowings.

He said the Reserve Bank's role is to keep inflation close to 2% as a means of encouraging investment and economic growth.