English Bill: Questions for Oral Answer — Questions to Ministers 
English Bill: Questions for Oral Answer — Questions to Ministers 
[Volume:639;Page:9729] 
6.  
Hon BILL ENGLISH (Deputy Leader—National) 
 to the  
Minister of Finance 
: How much funding does the Reserve Bank have for currency intervention and how is it financed? 
Hon Dr MICHAEL CULLEN (Minister of Finance) 
: 
 The bank has the capacity to intervene for two purposes. The first is in relation to crisis intervention capacity and for that the bank maintains a portfolio of approximately NZ$7 billion equivalent of foreign currency reserves for use in a foreign exchange crisis. These reserves are normally financed via long-term foreign currency denominated loans. Secondly the bank has the capacity to intervene on its own account for monetary policy purposes. The total of potential intervention possible for monetary policy purposes is market sensitive and is thus confidential. 
Hon Bill English 
: Has the Government set any limits on how often the Reserve Bank can intervene what risks the bank can take and how much taxpayers’ money is available to spend on currency interventions? 
Hon Dr MICHAEL CULLEN 
: The criteria for intervention are not those outlined by the member. They relate in effect to the following: the exchange rate must be exceptionally high or low it must be unjustified by economic fundamentals intervention must be consistent with the policy targets agreement and conditions in markets must be opportune to allow intervention a reasonable chance of success. The Reserve Bank independently determines when those conditions are met and without reference to the Minister of Finance. 
Hon Bill English 
: Does the Minister agree with the assessment of his Minister of Foreign Affairs Winston Peters who says New Zealand has “a currency crisis which is killing off our growth potential” and does he take Mr Peters’ warnings seriously enough to adjust his own spending policies to take some pressure off the high dollar? 
Hon Dr MICHAEL CULLEN 
: As I outlined in my first answer the Reserve Bank has the capacity to intervene for two purposes. That is in relation to a foreign exchange crisis and the second is in relation to monetary policy purposes. Clearly yesterday’s intervention was in relation to monetary policy purposes but clearly the member’s and his colleagues’ policy of an additional $2 billion a year of demand pressure in the economy would have placed significant further pressure upon the exchange rate. 
Hon Bill English 
: Does that answer mean the Minister does not agree with Winston Peters’ assessment that New Zealand has a currency crisis and that therefore he is not taking Mr Peters’ warning about future growth prospects seriously enough to adjust his own economic management? 
Hon Dr MICHAEL CULLEN 
: That answer means that it is clear the Reserve Bank intervened yesterday in relation to monetary policy purposes. In its view there was not a foreign exchange crisis. 
Hon Bill English 
: Does he agree with the Reserve Bank’s recent assessment that “Government spending is expected to increase substantially over the next few years and this is projected to add to inflationary pressures” or does he disagree with that? 
Hon Dr MICHAEL CULLEN 
: Clearly the fiscal position is looser than it was in the current year or last year. That extremely tight fiscal position was consistently criticised by members opposite and on the same day last week the member announced a half-billion-dollar reduction in spending by National while his colleague continued to promote a $23.5 million loosening through tax cuts. That is a $2 billion a year fiscal loosening compared with the current position. 
Hon Bill English 
: Did Mr Peters discuss with the Minister Mr Peters’ views about monetary policy prior to the Government’s signing up to an unchanged policy targets agreement with the Governor of the Reserve Bank just 3 weeks ago? 
Hon Dr MICHAEL CULLEN 
: I have always disliked the term “prior to” because I am not quite sure how long a period it covers. Certainly Mr Peters has discussed with me monetary policy over a long number of years. He has a clear interest in that matter. One of the many reasons why I signed up to an unchanged policy targets agreement was that it seemed to me that in light of the select committee undertaking its inquiry it would have been quite inappropriate to change the policy targets agreement at that point in advance of such an inquiry. 
Hon Bill English 
: Is the Minster of Finance now telling the House and the public that despite 12 months of complaining about how monetary policy did not work and despite intensive political debate over whether there should be supplementary instruments he decided to sign up to exactly the same unchanged arrangement with the Governor of the Reserve Bank and that it is now the Finance and Expenditure Committee that is really in charge of monetary policy? 
Hon Dr MICHAEL CULLEN 
: No. The member clearly does not understand even after all these years what the policy targets agreement is. The policy targets agreement is “What is the target for inflation?”. The target is 1 percent to 3 percent over the medium term. That is what the policy targets agreement says. The policy targets agreement does not say what the instruments available to the Reserve Bank are nor does it say what the other matters that relate to it might be; for example the issue of perhaps ring-fencing property investment losses against other income which both Mr Key and I believe would be a useful addition to the operation of monetary policy. But until Mr Key can convince his colleagues of that we may not be able to pass legislation. 
Hon Bill English 
: If the Minister believes that there are more effective tools than currency intervention and if he believes he should keep collecting the Minister of Finance’s salary why does he not make some recommendations to the public and to the Parliament about what other tools should be used besides currency intervention? 
Hon Dr MICHAEL CULLEN 
: I thank the member. I now remind him that in my office in December last year he and his leader and myself and Mr Mallard agreed to explore supplementary tools. One of those was a mortgage interest rate levy. Mr Key thought it was a very interesting idea. As soon as Radio New Zealand slipped it into the public arena Mr English dobbed on it as fast as he possibly could. The fact is that no changes can be made in these areas without a majority of Parliament supporting them because they require changes to legislation. [ 
Interruption 
] In response to the squeaks from Dr Smith I say that the Government does not pass legislation on its own.