Money policy ‘tighter’

Press, 9 December 1985, Page 17

Money policy ‘tighter’

PA Wellington The Reserve Bank’s new definition of the prime liquidity base had recognised the inadequacy of previous policies, the Opposition spokesman on finance, Mr Bill Birch, has said. The Minister of Finance, Mr Douglas, announced on Tuesday that the Government had changed its liquidity management programme to make its work easier for financial markets to understand. He said some of the procedures would be modified, but the firm policy of fully funding the fiscal deficit through the public debt programme remained. Mr Birch said that in one fell swoop the Reserve Bank had redefined the definition

of primary liquidity and would appear to have a much tighter monetary policy. “The policy has virtually been in effect since October, when the Prime Minister intervened because he was sick of high interest rates,” he said. “The Reserve Bank and the Government must ensure that the outcome of these changes is to reduce interest rates. “Whether that will happen will continue to depend on the bank’s ability to maintain a sufficient but stable prime liquidity base,” he said. That would be a function of its Treasury Bill programme and open market operations.