Reserve Bank Explains Policy Approach

March 18, 2013 New Zealand Taxation

New Zealand DollarsThe New Zealand Reserve Bank takes an expansive and holistic approach to analyzing economic factors affecting its policy decisions.

In a speech given late last week in Wellington the assistant governor of the Reserve Bank of New Zealand John McDermott explained the importance of economic forecasting for making decisions when setting the country’s monetary policies.

He said that there is no single “correct way to look at the economy”, and emphasized that the Reserve Bank analyzes data from several different sources when making a policy decision.

While describing the Bank’s forecasting procedures, John McDermott said that currently some of the most significant issues faced in New Zealand are the “…treatment of the persistently high exchange rate, high household debt and accounting for the substantial Canterbury rebuild.”

He went on to give an example, saying “…it may seem there is room to cut interest rates, given we are below our inflation target. But we have had to weigh up that such a cut would also probably exacerbate the current strength in house prices, resulting in higher debt levels and potentially raising financial stability issues.”

Photo by DMWyllie