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Bank looks for ways to control inflation

By AAP
14:22 AEST Thu Dec 6 2012
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The Reserve Bank is talking to the Treasury about ways to control inflation other than by raising interest rates.

Governor Graeme Wheeler hasn't given details but told he parliament's finance and expenditure on Thursday a new agreement with the government was being worked on.

"We are in conversation with the Treasury," he told MPs.

"We have produced a draft MOU (memorandum of understanding) which will be used to help address issues around financial stability and the vulnerability of the financial system to shocks that could be in the form of asset price bubbles."

Mr Wheeler said control of loan-to-value ratios would have been "tremendously helpful" during the 2001-2007 period when New Zealand's house prices were rising faster than in any other OECD country.

He said he didn't see the need to use that control now but it could be needed if there was another housing price bubble.

Labour's finance spokesman, David Parker, says the draft MOU is the first sign of the government conceding it is time to change its orthodox monetary policy.

"National now finally appears ready to consider some changes - it's about time too," he said.

"These changes are far from all that is necessary - the biggest problem is still the primacy given to inflation targeting ahead of other important matters of economic management like employment and the exchange rate."