27 Apr 2013

Call for broader mandate for Reserve Bank

6:22 pm on 27 April 2013

An economist says the Reserve Bank should consider the country's nominal gross domestic product (GDP) as well as inflation when deciding whether to alter the Official Cash Rate.

On Wednesay, the central bank held the rate at 2.5% and repeated its intent to leave the rate unchanged through to the end of the year.

It highlighted the competing pressures of strong inflation in the housing market and the overvalued exchange rate.

An associate economist for Moody's Analytics, Frederick Gibson, says while annual inflation is at a low 0.9%, that is no longer an accurate reflection of the economy.

He says the bank is already considering other factors than just inflation, but that should be formalised to allow for changes in the real economy.

"For example, if you had inflation slightly above two or three percent but you had real growth quite low, you could keep rates on hold or even cut interest rates.

"Conversely when you've got a situation where you've got really high growth and really high inflation, it'll probably put more impetus on more aggressive rate hikes."