Cullen takes indirect swipe at RB's Carr

By NZPA

Wednesday 26th June 2002

Finance Minister Michael Cullen today took an indirect swipe at Reserve Bank acting governor Rod Carr.

Asked to explain his criticism yesterday of the bank's interpretation of the Policy Target Agreement (PTA), he told NZPA today that his position had been summed up by a Macquarie Bank commentary.

The commentary by Macquarie Bank's economics head in Australia, Richard Gibbs, said Dr Cullen had confirmed "our long-held view that the Government has become increasingly dissatisfied with the central bank's heavy-handed approach to monetary policy setting".

Mr Gibbs said a likely catalyst for Dr Cullen's elevation of the policy target issue into the current election campaign was the recent assertion by Dr Carr that the bank had already run an experiment to see if the economy could grow faster than 3 percent without inflation.

"From our perspective, these comments suggest that under the current monetary policy structure the economy is condemned to a sentence of sub-par growth in which monetary policymakers assume little responsibility for the underemployment of resources.

Mr Gibbs said Treasury's latest forecasts published yesterday implied a greater degree of interest rate tolerance in respect to growth rates at or around 3 percent in 2004 and 2005.

Dr Cullen said it was totally inappropriate to comment on whether acting governor Rod Carr would be acceptable to him if appointed governor. The RB board nominates a Governor but the finance minister has the power to reject the nomination.

He said he felt perfectly free to be able to reject a nomination.

He said he thought there had been an understanding that the bank would be flexible on the 0-3 percent inflation target but he was now not convinced.

Dr Cullen refused to discuss what he would change in the PTA so that he and the bank were in synch on how the inflation target should be interpreted.

The Government was trying to achieve flexible inflation targeting consistent with a strong growth strategy, he said.

"We must ensure the Policy Targets Agreement is expressed in a way where the bank is clear about that. I thought that was clear. It is apparent from recent comments from the bank that that is not clear."

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