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Stability the key to long-term growth

Stability the key to long-term growth

(30 October 2012 – New Zealand) New Reserve Bank of New Zealand (RBNZ) governor, Graeme Wheeler told the Admirals’ Breakfast Club in Auckland on Friday that pursuing price stability and financial system stability was the best way for the central bank to bolster the country’s long-term growth. Wheeler said New Zealand should be capable of better economic growth given its tremendous assets. But as a small open economy, it is continually buffeted by external economic and financial shocks.

"New Zealand needs to reverse the slow-down in multifactor productivity growth and the decline in value-added in our tradable sector, and reverse the shift of resources into the public sector and non-traded activities," Wheeler said.

In the wake of the Global Financial Crisis, central bankers and fiscal authorities are now more conscious of potential risks and possible flow-on effects to the banking sector. Wheeler said the RBNZ has placed a high priority on strengthening New Zealand’s prudential regime, including introducing macro-prudential instruments and having an Open Bank Resolution capability in place.

He noted that large central banks in many advanced countries are operating in new territory with unprecedented policy settings.

"Price stability and financial stability remain the Reserve Bank’s central objectives for monetary policy and prudential policy. These provide the best framework for achieving stronger growth in output and employment in the longer term," Wheeler said.

"The recent Policy Targets Agreement (PTA) reinforces the importance of price stability, and introduces the goal of keeping future average CPI inflation near the 2 percent mid-point of the 1 percent to 3 percent target range. Over time, attaining this outcome should help to anchor inflation expectations around the mid-point."
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