Nats, Greens at odds over interest rate hikes

Last updated 16:30 16/03/2014

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Finance Minister Bill English says the Government is doing all it can to ease the pain of rising interest rates.

But Green Party co-leader Dr Russel Norman wants to see a broader approach to monetary policy in New Zealand, saying raising the Official Cash Rate was not the only way to combat inflation.

The Reserve Bank last week lifted the OCR from 2.5 per cent to 2.75 in what is expected to be the first of several hikes over the next two years as the central bank aims to keep inflation in check.

Economists say that if, as predicted, the rate is increased by 1 percentage point by the end of the year, families will be forced to pay an extra $20 a week for every $100,000 they owe.

English told TVNZ's Q and A today that the Government was doing all it could to help those households which were affected.

''There isn't some kind of magic solution her like jiggery-pokery with the Reserve Bank Act, or pretending prices are lower than they are, which is what the Greens and Labour are promising.

''It's about the kind of diligent hard work we've all been doing, not just this government but households and businesses, becoming more productive, more careful with our spending, getting debt down, a bit less consumption, and good control of inflation.''

Keeping costs down and increasing productivity was the way to ensure a sustained economic recovery which would lead to more and better paying jobs and help people get on top of their debt, he said.

The best way the Government could help was to try and address issues which were driving house prices up, such as the lack of supply.

He did not want to see a restriction on foreign owners, however.

He said this week's OCR increase was due to the relative strength of the New Zealand economy.

''There's a lot of economies around the world would like to see some signs that interest rates were reflecting the fact that the economy's growing.''

Norman said jacking up the OCR was not the only way to combat inflation.

The Greens want to see a broader approach to monetary policy, including a targeting of those sectors, such as housing and electricity, where there was inflationary pressure.

''What you need to do when you're dealing with inflation coming out of particular sectors is target those sectors like housing, electricity, where we have big inflationary pressures, rather than using the official cash rate to crush the entire economy, bring up the exchange rate and make the tradeable sector really struggle, which is the current strategy of this government,'' he said.

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''We have some deep lying structural issues in the New Zealand economy, and the answer to them isn't to jack up the OCR every time we see inflationary pressures from the housing market, the answer is to target the housing market with the kind of tools the government has available to take the heat out of that market.''

- Stuff

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