Key rejects Goff's call for changes to monetary policy

Prime Minister John Key has hit back at Labour leader Phil Goff's criticism of New Zealand's monetary policy, saying it meets international best practice.

Key said in Christchurch yesterday it was all very well for Goff to identify potential problems with the Reserve Bank policy targets, but he had not offered any solutions.

Goff ended a 20-year political consensus on monetary policy when he told a Federated Farmers meeting in Wellington yesterday that Reserve Bank policy targets were not designed to produce a stable and competitive exchange rate, or to keep interest rates as low as possible. Goff said Labour would be studying options to improve monetary policy, but did not offer any immediate answers.

Key said Labour had conducted five reviews of monetary policy when it was in power and had done nothing.

As part of those reviews, international experts had determined New Zealand operated under international best policy, Key said.

"Somehow, magically believing that there is a solution to monetary policy that we've all missed over the past 20 years is laughable," Key said after a speech to party faithful.

Key acknowledged exporters were struggling. This was not because of a defective monetary policy, but rather because the United States economy was weak, which was pushing up the exchange rate, he said. There was work to do to make life easier for exporters, but that did not mean changing monetary policy - it meant reducing red tape and the bureaucracy swamping businesses.

When asked what he thought of Goff breaking the 20-year consensus, Key said it would be a big deal if Goff had come up with some solutions.

"In the end New Zealanders know if you want to have a strong economy you've got to have good economic policies - there is no magical wand that you can wave."

New Zealand Manufacturers and Exporters Association chief executive John Walley supported Goff's call for change.

Walley said New Zealand should look at Singapore's monetary policy, which had delivered it a stable exchange rate, lower inflation, lower interest rates and higher growth than New Zealand for decades.

Key said monetary policy was important because if inflation went out of control, Kiwis would have their savings eroded as the price of goods and services rose and the country became less competitive.

The mood of the country had improved since National took over, Key told more than 300 supporters at Christchurch's Chateau on the Park.

Businesses that a year ago were looking to retreat and retrench were now seeing new opportunities, Key said.

"We're not over the challenges yet, but a brighter future is looking much closer than it was."