Review of monetary policy needed

This week Finsec called on the government to review its monetary policy framework in light of an International Monetary Fund report which calls into question the benefits of the exclusive use of interest rate setting and inflation controls.

The report includes a look at how the regulation of banks could also be used to help the economy through setting measures such as stronger capital and liquidity ratios if banks appear over leveraged or if cash liquidity is too low in the economy.

“The global financial crisis highlighted the limitations of current policy and showed the real benefits of fiscal policy and regulation in resolving targeted problems. Targeted tools can be used to resolve specific problems in the economy,” said Finsec spokesperson Andrew Campbell.

Andrew thinks that the government needs to seriously consider the report, especially given that many other countries are reviewing their policies at the moment and New Zealand seems to be lagging behind. “If the government chooses to ignore this report and retain the existing monetary, fiscal and regulatory policies, it is likely to lead to serious ongoing problems for New Zealand,” he said.

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