Reserve Bank governor Graeme Wheeler is being broadly applauded for his first public speech, as he criticised the idea of printing money or direct intervention to bring down an overvalued dollar.
Economists said Wheeler's "big picture" speech was "well worth reading", that the "governor was well prepared for the job ahead of him" and overall it reflected a "business as usual approach".
The Green Party has recently suggested the Reserve Bank print money - "quantitative easing" - to bring down the value of the dollar to help hard-pressed exporters.
But Wheeler slapped down the idea, pointing out that since the start of the global financial crisis, the United States Federal Reserve had expanded its balance sheet by 13 per cent of GDP, the European Central Bank by 16 per cent, Bank of Japan by 10 per cent and the Bank of England by about 20 per cent.
"In all four cases the official cash rate is 0.75 per cent or less. In all four cases there is little evidence of any appreciable impact on economic growth," he said.
The Reserve Bank would like to see a lower exchange rate "provided it can be achieved without damaging price and financial stability".
But rather than trying to drop the dollar by printing money, cutting the offical cash rate or by direct intervention in currency markets, the answer was to reduce New Zealand's dependence on foreign lending.
Wheeler's first speech, entitled "Central Banking in a Post-Crisis World", given in Auckland yesterday was seen as a crucial guide to his approach to the job as governor.
Westpac senior economist Michael Gordon called the speech "a statement of intent" for the next five years. The speech showed Wheeler was not a "fox" like Alan Bollard, who knew many things, but rather a "hedgehog", who knew one big thing: that price stability and a stable financial system were the only things that a central bank could deliver on in the long term.
Bank of New Zealand said the governor's speech strongly confirmed that he was more "hawkish" or tougher on inflation than former governor Bollard.
Wheeler also showed himself as a "traditionalist" on monetary policy, maintaining price stability as the top priority, ruling out quantitative easing until the cash rate was close to zero and probably not even then, and rejecting currency intervention, BNZ said.
Meanwhile, Wheeler said that much of the strength of the New Zealand dollar was due to the country's terms of trade being close to a 40-year high.
"In order to achieve a sustained reduction in the New Zealand dollar, it would be necessary to alter the overall level and pattern of saving and investment in the economy. In particular, it will be necessary to tackle our addiction of depending on foreign savings to finance our consumption and investment."
"Monetary policy by itself cannot deliver quick-fixes to achieve and sustain more rapid economic growth, lower unemployment, or maintain a lower exchange rate."
Labour leader David Shearer yesterday said he would seek a meeting with Wheeler to discuss his stance on monetary policy "rather than form a view from a single speech" after the governor's first speech endorsed the current regime.
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