COMMERCIAL Bank sees relaxation of economic controls

Press, Volume CXI, Issue 32764, 15 November 1971, Page 18

COMMERCIAL Bank sees relaxation of economic controls

The probability of a relaxation of monetary and fiscal controls, to allow short-term economic growth at more acceptable levels, was discussed in the latest Quarterly Economic Review of the Commercial Bank of Australia, Ltd.

I “As evidenced by the 1.9 per cent increase in the All Groups Consumers’ Price Index during the September quarter, monetary and fiscal ■i policies introduced in the I’ October, 1970, mini-Budget I still have some way to go beI fore an acceptable degree of I stability is restored to the I New Zealand economy. I “Wage and price inflation i I still persists, despite continuI ation of the now-prolonged I credit squeeze. I. “Quite clearly, the compre- ■ hensive ‘package’ of econoI mic measures introduced by I the Government to induce I: stability has been weakened I considerably by the failure of I 1 the Remuneration Authority I to restrict • award wages inI creases to within the 7 per I cent per annum guideline. I “The industrial problem in I New Zealand, as in many Il other parts of the Western r World today, demands firm land yet still acceptable, use ■ of direct controls, if a short

/ such a strategy would be unpalatable. 3 It is more likely that the ’ Government will relax its i controls to some extent, with the view of allowing the s economy to progress at more .■acceptable levels. -j The possibility of a com- , | promise along these lines—- ■ i.e. sacrificing improvement 11 in the wage/price spiral with I j its atendant long-term benefits, for the sake of short- • term growth is a reflection i of the continuing improve- , ment in New Zealand’s over- • seas exchange position. i Official overseas reserves : stood at 5NZ502.4 million at . the end of August, compared • with 5NZ332.4 million a year > earlier. , This comparatively buoyant position, together with ■ good surpluses accruing from 1 Current Account trans- . actions, presents an external i situation which would justify ; some expansion in the interf nal economy,” the review ■ concluded.

term solution to the wage/ price spiral is to be found. “However, in practice, the two objectives of ‘firmness’ and ‘acceptability’ are often found to be irreconcilable. “Whilst the Government’s monetary and fiscal policies have had little apparent ef-j feet on the rate of inflation,: they have certainly con-| j strained the rate of real growth in the New Zealand economy. “With a downturn in productivity and a decline (in real terms) in retail sales, the last few months have witnessed a sharp reduction in the level of employment vacancies and an equally sharp increase in the number of unemployed persons (4136 at the end of July 1971, as against 1717 last year).” Perpetuation of these trends, through continued tight monetary and fiscal control, may ultimately restrain the wage/price spiral, but the political and social costs of