Bollard deserves a pat on the back

Reserve Bank governor Alan Bollard should stand firm and let the markets set interest rates, writes Marlborough Federated Farmers president GEOFF EVANS.

This year Alan Bollard and his team at the Reserve Bank have shown commendable restraint by leaving the official cash rate (OCR) at its present level. This is in the face of demands and suggestions by assorted bank economists and interest groups.

At last the market is setting interest rates, not the Reserve Bank. Inflation in New Zealand is at a near all-time low.

This is as it should be and as this continues, the real drivers of inflation are identifying themselves.

In the past decade the high New Zealand OCR ensured an artificially overvalued exchange rate. New Zealand interest rates had nothing to do with the international cost of money. Money was cheap in the world and the New Zealand banks were very, very profitable, borrowing offshore at low rates and lending at exorbitant rates here.This flow of money drove a grossly overvalued exchange rate.

Dr Bollard must be encouraged to continue to stand firm and let the markets set rates.

The Reserve Bank now can control inflation more with other methods such as money supply or reserve requirements. This new order is identifying who is causing inflation.

The Government borrowing $250 million a week on its own is driving up interest rates. The signalled spending on infrastructure and tourism, the subsidies handed to almost every sector apart from the primary industries and the fact that it will be another decade before any attempt to balance the books are major drivers of inflation.

Taxation, local government rates, regulations and wage and salary increases not related to productivity have impoverished our primary industries. One typical example is this year's proposed ECan rate rise of 28 per cent for rural Kaikoura.

Federated Farmers president Don Nicolson said recently: "As farmers, we collectively retained just 6.2 cents inside the farm gate out of every dollar we generated for NZ Inc."

The Prime Minister's recent state-of-the-nation address also has done nothing to improve the health of New Zealand's primary industry. In fact primary industry has yet again been ignored.

Dr Bollard cannot control any of this. What he can do is to ensure that those who are causing this dysfunction are recognised by allowing New Zealand's markets to work.

So far this year, he has. So, well done, Dr Bollard. I hope he continues with this policy tomorrow.

- © Fairfax NZ News

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