Inflation target right way to set rate - Bollard

Last updated 07:30 14/09/2012

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Alan Bollard is defending the mechanism used to determine interest rates, calling it "completely fit for purpose".

Currently the bank's main focus when determining what the Official Cash Rate (OCR) should be is inflation, with a target of 1 per cent to 3 per cent over the medium term. Opposition MPs, led by Labour finance spokesman David Parker, have been pressing for broader targets for setting interest rates, to take in the impact of interest rates on employment and exchange rates.

Appearing before the finance and expenditure select committee at Parliament yesterday, Bollard defended the policy.

"The scope that the Reserve Bank Act gives, it's allowed us to deal with a very tight, growing housing market back in the 2000s, it's allowed us to deal with a very nasty financial event back in 2008."

He said the bank had not felt bound by a "strict suit" of inflation targeting, and while he accepted not all economists agreed it was the right policy, it was the "established" position.

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- © Fairfax NZ News

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