The statement accompanying today’s OCR announcement was extremely disappointing. But not surprising.

Yes, there is the very welcome acknowledgement that:

“The level of the dollar in particular, is not helping the sustainability of the future growth, and brings with it additional economic risks."

“The forecast recovery is based on a further easing in financial conditions. If this easing does not occur, the forecast recovery could be put at risk.”

Translating to ordinary speak – this means that the high dollar is slowly, but surely, killing any chance of an export-led recovery.

And in the absence of such a recovery, we risk repeating the mistakes of the last cycle. That is, a recovery based on spending.  Such spending, in turn, would be founded on a rebound in property prices. And, further, on prices that bear little relationship to the value of productive assets or the income-earning potential of the New Zealand export sector.

And this is where the disappointment enters. In the face of this clear and present danger to the New Zealand economy what is the response? The response is a meek 8-word sentence threat:

“In these circumstances we would reassess policy settings.”

But full credit to the RB. This is 8 words more than anything that has been emanating from any other economic officials or national leadership. Surely, it is the role of the collective leadership of a country to guide its people away from earlier mistakes so that we don’t fall into the same holes as previously? But the mistakes are scarily close to being repeated.

Unless it has escaped everyone’s attention, it is worth noting that the OCR is currently impotent. Another cut will make little, if any, difference to the long-term level of the exchange rate (not to mention its volatility), and little, if any, difference to interest rates being paid by businesses.

So, we get words and little else. Meanwhile, the exchange rate remains a plaything for speculators, resulting in a price that is far removed from that needed to signal an appropriate allocation of real resources into the export sector.

Yet again the orthodoxy of the monetary policy framework adopted by New Zealand has been found wanting. It failed in reining in the blowout in property prices on the upturn, and now it is failing in providing the necessary signals for an export recovery.

Is it any surprise that investment in the export sector is conspicuous by its absence, as commentators prefer to monitor house prices as if they were an indicator of recovery and economic prosperity?  And, in such a policy framework, is it any wonder that New Zealand’s productivity growth is also conspicuous by its absence.

No doubt, the new Productivity Taskforce will tackle these matters accordingly.