Magazine article New Zealand Management

Cullen's Tongue Tripping

Magazine article New Zealand Management

Cullen's Tongue Tripping

Article excerpt

Finance Minister Michael Cullen has, in recent months, twice tripped on his tongue in a manner which exposed him to charges that he is having more say in the fixing of interest rates than is permitted under the Reserve Bank Act. The legislation bestowed independence on the bank and its governor in the management of monetary policy. Cullen's remarks implied he was indeed tampering with this independence.

The first occasion was during parliamentary question time on September 8. Reserve Bank governor Alan Bollard was scheduled to publish the September monetary policy statement the next morning and, according to 100 percent consensus of opinion in the money markets, would raise the official cash rate by another 25 basis points.

Cullen, the day beforehand, was given an opportunity to gush about the good things happening in the economy and made the most of it claiming that rating agency Standard and Poor's had reconfirmed New Zealand's double AA credit rating, its decision "based on this Government's sturdy financial management", and the National Bank's "Business Outlook" which observed: "Good news about our economy seems to be everywhere."

But Cullen went a gush too far. "Although the Reserve Bank raised interest rates today, it did so because growth is so strong." There was a hub-bub in the House and National's finance spokesman John Key smartly seized on the remark: "Can the Minister confirm for the House that he has just announced, in his answer to the question, the interest rate rise that we assumed fine governor of the Reserve Bank would be announcing tomorrow?"

Cullen's retreat from an obviously awkward spot was sounded by him saying that he was simply following the predictions of all economists. "All I can say is that if there is not one [increase], I will be very surprised indeed this time."

More to fine point, former Treasurer Winston Peters asked if the Minister of Finance had received any information suggesting that the governor of the Reserve Bank would lift interest rates, and if so, "how on earth could the governor be complying with this country's law?" Cullen insisted the governor certainly had not told him what his intentions were in terms of the announcement next morning, but "I have had advice from Treasury that there is 100 percent unanimity amongst bank economists that interest rates are going to rise."

A month later Cullen was in New York where a session with Dow Jones analysts was included in his schedule. …

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