KEY POINTS:
Economists believe it would be unwise for Finance Minister Michael Cullen to attempt to avoid another interest rate rise by suspending the Reserve Bank's inflation focus.
Exporters are under further pressure as the dollar cracked the 79 US cent mark this week, creating a new 22-year high. Coupled with Monday's inflation data which was higher than expected, analysts expect Reserve Bank Governor Alan Bollard to announce another increase to the official cash rate during next week's review, which could serve to push the exchange rate even higher.
Dr Cullen is not ruling out using powers under section 12 of the Reserve Bank Act that enable him to change the bank's chief objective of keeping inflation between one and three per cent and force the bank to change its objectives.
Cameron Bagrie, ANZ's chief economist, says that would be an absurd and rash reaction.
He says one of the reasons the economy performed well during the 1990s was because the Reserve Bank kept inflation low and ensured price stability. He says it is important the Reserve Bank be allowed to curb inflation itself and ensure price stability.
Mr Bagrie says it seems like tough love at the moment, but to underpin medium term prospects the economy needs to go through this adjustment.
- NEWSTALK ZB
