Goff announces end to RBNZ independence if Labour gets back in

Either showing a complete misunderstanding about how monetary policy works, or showing that political power is more important than the welfare of New Zealander’s Phil Goff has stated that:

Today I am announcing the end of the consensus around the policy targets and tools of the Reserve Bank

Ignore him when he says that he is still interested in “monetary policy independence”.  Forcing the RBNZ to target near term growth and the exchange rate destroys the purpose of Bank independence in the first place.  Ignore him when he says he “wants to put money in peoples pockets” – as by cutting interest rates he is just transferring money from borrowers to savers.

Monetary policy should target stable inflation expectations, that is all.  All this crap from both the government and the opposition blaming the RBNZ for whatever is going on with the exchange rate is ignorant.  If our exchange rate is “too high” then as Treasury says the government could lower it by cutting the structural level of government spending, or by adjusting the tax system.

Furthermore, we have to ask, what do we mean when we say “the dollar is too high”?  The ultimate goal of policy is to maximise welfare (net happines) in society, not to “accumulate wealth” or “move the value of the dollar”.  If we ask ourselves “why” we think the dollar is too high then we realise that the problem isn’t monetary policy, but a host of other structural factors.

God we have discussed this stuff constantly (here, here, here, and here).  Phil Goff, I thought you were a pretty cool guy, but to be honest this makes me sick.

Disclaimer:  I am personally insulted by this blatent attack on monetary policy independence, and have written the post as such.  The opinions put down are not representative of anyone else I am involved with.

Others on itKiwiblog, Rates Blog, Not PC, the Standard.

  • Miguel Sanchez

    Also, ignore anyone who regurgitates this kind of drivel:

    “Ironically, higher interest rates attract even more inflows of foreign capital, which then gets lent out and sometimes causes even stronger domestic demand.”

  • Robbie

    Also, when Goff says: “we need to guard against people locking in higher expectations of price rises”. Read as, “I am advocating the under-valuation of tomorrow’s consumption.”

  • @Miguel Sanchez

    @Robbie

    True true true.

    I am especially annoyed with that stupid capital inflow line. Goff does realise that there needs to be someone on the other side borrowing capital at the higher interest rate right …

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