[With inflation at] 1.6%, well within the band, and what we are experiencing, many parts of the New Zealand economy are actually experiencing deflation,” Dr Nana told TV3’s The Nation.

The Reserve Bank has signalled at 2% rise over the next two years, the economist said, characterising it as “quite steep increase.”

“The risks are that we put pressure underneath our exchange rate even more that increases our exchange rates, that makes imports cheaper so we’re rewarding consumers and that makes exporting a lot harder so we are penalizing those that are trying to actually earn us an income.”

Dr Nana said interest rates were a “very blunt tool … We’re supposed to be focusing on economy wide inflation…not just house prices, and not just house prices in Auckland. And actually the worrying thing, or the frustrating thing from my perspective is that we’ve been through this so many times before and yet that we still haven’t learnt as a country that we can’t control house prices through the blunt instrument of monetary policy. And that seems bizarre that we are penalising large proportions of the New Zealand economy and population because of problems in particular sectors or particular regions.”

NBR Staff[/fusion_text]