Reaction to Labour’s monetary policy u-turn

Matt Nolan translates what Labour is proposing:

Labour goals were:

  1. a stable and competitive exchange rate;
  2. reduced interest rates for businesses and home owners;
  3. continued priorities of price stability and low inflation;
  4. to guard against expectations of price rises.

So, with goal 1 they want to reduce the flexibility of NZ$ prices, which will lead to higher unemployment and a worse allocation of resources.  Furthermore, they want to keep the dollar low which implies subsidising exporters to the cost of households in the short-term.

With 2 they want to punish savers.

And with 3 and 4 they want to contradict themselves – as by limiting price flexibility and holding the exchange rate and interest rates down they WILL drive an increase in inflation expectations, dump price stability, and remove any chance of a low inflation environment.

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