Opinion: What Bollard should be learning at Jackson Hole

By Roger J Kerr Central banking leaders from around the globe congregate at Jackson Hole, Wyoming this week to contemplate how they are all going to unwind the emergency and extreme monetary stimuli implemented last year. The Aussie currency will probably lead the US in the unwinding stakes, with the Brits and the Europeans a long way behind. Reserve Bank of New Zealand Governor Alan Bollard has a different set of monetary problems right now and may not learn too much from the other central bankers. The spectacular rise in the value of the NZ dollar over recent months has involuntarily and prematurely unwound our super-loose monetary settings and returned the old Monetary Conditions Index (a combination of the TWI and 90-day bank bill rates) from -1000 in February to zero now. Bollard's problem is not how he unwinds super-loose policy, but how he returns monetary conditions to the previous super-loose position. He has already attempted to jaw-bone the NZ dollar currency value downwards with absolutely no success as the Kiwi/USD rate soars above 0.6800 on the gains of the US sharemarket. The types of questions Mr Bollard should asking the others is how to bring about other economic policy changes to control inflation apart from ramping interest rates up and down and killing the export/productive sector in the process. New Zealand's sad experience over the last four years is that excessive interest rate volatility from the Reserve Bank has caused excessive currency volatility, which in turn has permanently damaged the export industries the economy is entirely reliant upon. Mr Bollard already knows that virtually no other economy in the world has its GDP growth performance so intricately linked to the volatility and level of their exchange rate. New Zealand is unique in this respect and we need to understand this and adjust our monetary policy management framework accordingly. The New Zealand economy requires much more than the blunt instrument of interest rates to control its inflation rate. What are some of the solutions to this specifically New Zealand dilemma the international central bankers may suggest to Alan Bollard? How about this lot? "¢ exclude Government/public sector price changes from the inflation range the RBNZ must stay within, "¢ exclude overseas sourced oil price changes from the inflation range as well, "¢ demand that the Government change economic policies to promote competition in all sectors of the economy. There are too many cartels and monopolies ripping the consumer off in New Zealand and we all just accept it. "¢ enhance controls over bank credit growth through capital adequacy ratios, as well as liquidity and funding risk controls. In any case credit is going to be restricted in the NZ marketplace over coming years as the now highly credit rated Aussie banks chase more lucrative lending deals globally, "¢ get the Government to instruct local government and councils to release much more land for residential sub-divisions to end the ludicrous artificial supply constraints on the property market, "¢ get the Government to stop the distortions in investment in the New Zealand economy by changing current taxation policies in respect to residential property (other than the home you live in). Listed above are six mates to monetary policy that two Government enquiries into monetary policy (in 2006 and 2008) could not see, understand or recommend. By golly we make it hard for ourselves in New Zealand ! "”"”"”"”"”- * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com