Grant Robertson rejects doing 'enormous backflip' in Reserve Bank policy

Grant Robertson has denied crumbling to pressure from the National Party, after writing a letter to the Reserve Bank asking for their help cooling the housing market. 

National's shadow Treasurer Andrew Bayly last week called for the Reserve Bank to put limits on how $28 billion in cheap lending could be used, fearing most of it would end up being poured into the unproductive housing market, rather than business. 

The Reserve Bank's record-low interest rates have helped fuel the housing market, which saw prices jump by nearly 20 percent in just a year, despite the pandemic and recession. Interest rates have been kept low to keep investment levels up and prevent unemployment rising further - one of the Reserve Bank's official goals in setting monetary policy. 

Prime Minister Jacinda Ardern dismissed National's suggestion, saying it would be a "significant departure for a political party in New Zealand to move away from what has been the long-term consensus around the separation between politicians and the Reserve Bank", adding that New Zealand "learned some hard lessons as a country several decades ago".

But then on Monday, the Finance Minister - after discussions with Cabinet - decided to get in touch with Reserve Bank Governor Adrian Orr anyway.

"It is funny isn't it?" National leader Judith Collins told The AM Show on Wednesday.

"On Monday it was all Muldoonist to take the advice of Andrew Bayly and write to the Reserve Bank and say, 'Look - you've just got to be a bit careful about all this money charging into the overheated housing market and not going into business instead.'

"On Monday she said that, and yesterday all of a sudden Grant Robertson - in an enormous backflip - has decided that yes, he is going to do exactly that."

Judith Collins.
Judith Collins. Photo credit: The AM Show

Sir Robert Muldoon exercised great control over monetary policy, including implementing wage and price hikes. In the late 1980s, the reformist Labour Government gave the bank its independence to set policy as it saw fit.

Robertson told The AM Show it still had that independence, rejecting suggestions he was doing National's bidding in writing to Orr. His letter asked the Reserve Bank to consider rising house prices when tackling inflation - with no direct instructions on what to do. 

"What Mr Bayly was suggesting last week was something quite different - which was actually to go to the Reserve Bank and tell them how to do the operation of monetary policy. In our system, we separate that out, and that goes all the way back to the 1980s where we decided it wasn't a good idea for politicians to make the specific decisions. 

"What our job is, is to set the goals, set the frameworks, set the criteria and agree those with the Reserve Bank, then they go away and make the operational decisions. What we're doing is intervening at what I think is the appropriate level, rather than what Mr Bayly was suggesting." 

Collins maintained this was "exactly what Andrew Bayly asked him to do - say to the Reserve Bank that house prices are something that do need to be considered".

"It's certainly far more of the mandate of the Reserve Bank than say employment, for instance."

Grant Robertson.
Grant Robertson. Photo credit: The AM Show

Robertson said the timing was not influenced by Bayly's call for interference. 

"We've been looking - as all New Zealanders have - at the rapid escalation of house prices in recent months. It's part of our agenda to strive for more equality in the housing market, to be able to improve affordability. 

"If we take ourselves back three or four months, every economist was projecting house prices would plummet in the wake of COVID-19. The opposite in fact has occurred. So we've taken some time over the period since the election to think about what we can do, as the Government, but also reaching out to the Reserve Bank to ask them what they could do. 

"Ultimately we have to deal with situations as they emerge and change, and that's what we're doing here."

Asked what level of house price increases would be acceptable, Robertson said he wouldn't put a figure on it.

"I don't think there's anyone out there sitting thinking that 15 and 20 percent is good. Individual homeowners, fantastic, but actually we're all parents, grandparents, we all know people who are struggling as first-home buyers to get into the market... the exact number is not something I'm going to speculate on."