Armstrong on Labour and Reserve Bank

John Armstrong writes:

Not wanting to compromise the bank’s independence, Key had to accept the bank’s right to write the restrictions in its own terms.

Not so Labour. Cunliffe made vague noises about not interfering with the bank’s independence. But he intimated a Labour government would effectively instruct the bank to have regard for first-home buyers by writing that requirement into the policy targets agreement that a new government signs with the bank soon after taking office.

Cunliffe’s stance reflects his intention to give Labour a more bolshie image. He is exploiting the fact that Opposition parties can promise more than governments can. And he knows interest rates are likely to rise before the election.

But Cunliffe has to be careful. With Labour also committed to making the Reserve Bank take heed of exchange rate fluctuations, Cunliffe has to avoid leaving the impression that Labour’s answer to every economic problem is to fiddle with the Reserve Bank’s mandate – and thereby neutering the institution in the process.

I think it is clear the Reserve Bank will cease to be an independent entity under Labour. It will be back to the 70s.

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