20 Dec 2008

New Govt agreement with Reserve Bank

5:58 pm on 20 December 2008

The Government has signed a new policy target agreement with the Reserve Bank, dropping references to full employment and a more equitable spread of incomes.

The main plank of the agreement remains, which is to keep inflation between 1% and 3% percent on average over the medium term.

The change involves the government's broad goal of promoting an open, competitive economy that will lift New Zealanders' incomes and living standards.

Finance Minister Bill English says low, stable prices are a key part in achieving that objective.

The previous agreement, between Reserve Bank governor Alan Bollard and former Labour Finance Minister Michael Cullen, talked about sustainable and balanced growth that would create full employment, higher incomes and more equitable distribution of incomes.

The Reserve Bank expects inflation will fall close to the middle of its target band by the middle of next year.

It has slashed interest rates by 3.25 percentage points to 5% since July, and economists expect more cuts next year as the bank responds to the global financial crisis and severe economic downturn.