On Breakfast this morning:
Corin: On the cost, 15 billion dollars now Treasury is saying, and 1.5% of GDP, does that make a cut in the official cash rate, some help for monetary policy, pretty much essential this week?
John: Well that’s a matter for the Reserve Bank Governor, and it’s for him to decide and him alone to decide what happens on Thursday …
And that’s where ideally the sentence should stop. But the transcript continues:
but certainly the markets have factored in a likely cut in the official cash rate, and you’ve gotta say lower interest rates probably help the country, but that ultimately is a matter for the Governor
That is a subjective view that lower interest rates help the country. They don’t help long-term if they lead to excessive inflation.
On this case I agree with the PM, but the difference is I am not the PM. By making those comments, we have a possible headline that if Bollard does not lower interest rates that the “PM thinks Governor is not helping New Zealand”.
I’m a bit of a purist. I beleive there are only four people in New Zealand who should not express a view on what the Reserve Bank Governor should do – that is the Minister of Finance, the Prime Minister, the Leader of the Opposition, and the Shadow Finance Minister. They are all his current or future effective bosses, and any comments from them puts pressure on the Governor – even if unintended.
Also politically commenting is not wise. If the Governor happens to do what you say, then there is a suspicion he was pressured to do so. If the Governor does not do what you say, then the media will paint it as a row.
The bottom line is that while the public like having a Prime Minister who will answer questions on almost every issue and subject – potential changes to the official cash rate should be one you don’t answer except to say :”It is a matter for the Governor”