RBNZ, NZX and equity markets
Posted August 2, 2007on:
The NZX wants the RBNZ to pay more attention to the way the equity market behaves when the bank change the official cash rate.
Now I can’t find a copy of the submission anywhere, but the above stuff article at least tells us that the NZX would like policy goals to be focused on long term economic growth. Now I think the ultimate goal of the RBNZ is long term economic growth, however the Bank believes that the way to do it is to provide an environment with a high degree of price stability.
The NZX counter-argument is that the narrow focus of RBNZ policy leads to higher equilibrium interest rates, which increases the cost of capital for firms, retarding long run economic growth.
Now I have some sympathy with the idea that our equilibrium interest rate is too high, however I think we have to figure out why interest rates seem to be, on average, higher in NZ than in the rest of the developed world. The RBNZ acknowledges the fact that New Zealand seems to have higher equilibrium interest rates than other develop nations, but they see this as a result of New Zealand’s poor net investment position. As it is the result the Bank doesn’t see monetary policy as the problem, the problem is structural.
The question I have to ask then is, why is our net investment position so bad (current account deficits damn it) and how do we get out of it?
P.S. If anyone knows where I can find copies of the submissions to Parliament’s Finance and Expenditure Committee, please tell me in the comment section. I can only seem to find the Reserve Bank one.