The Reserve Bank has lost its grip on inflation and the dollar and needs to act more decisively, says the Labour Party.
The central bank cut the Official Cash Rate to a record low 2 percent yesterday morning, and signalled it was prepared to go lower if need be. The exchange rate jumped in response.
But at the finance and expenditure select committee meeting held later that day, Reserve Bank Governor Graeme Wheeler faced heavy scrutiny over his ability to manage the economy.
Labour finance spokesperson Grant Robertson was unimpressed with the bank's record, saying it had failed its own mandate to get inflation back in the target band and get the dollar down.
"You'll reach the mid-point by 2018. It'll be seven years under the 2 percent mid-point target. You've got an exchange rate that simply goes up every time you cut, and you've got the trading banks not passing on."
"Are any of the tools you've got working?" MR Robertson said.
But Mr Wheeler stood firm, arguing the bank's approach was the right one
He told the committee the economy was forecast to grow faster, at more than 3 percent.
He blamed weak global conditions and low international interest rates for putting upward pressure on the currency, and making it difficult to boost low inflation.
"You've now got negative interest rates in country's that represent a quarter of world output. We've now got more quantitative easing than we've ever had before. We're in the most extraordinary of times," Mr Wheeler said.
That failed to soothe disgruntled MPs.
New Zealand First's Fletcher Tabuteau wanted to know why Mr Wheeler had not been more bold, and cut more heavily.
"The interest rate differential right now between us and the rest of the world is huge. You said yourself that's putting huge pressure on our exchange rate. It's putting the dollar out of kilter with expectations."
"Wasn't it now the time to go with a 50 basis point hit?" Mr Tabuteau said
National's Andrew Bayly also questioned why the dollar had risen when the Reserve Bank had signalled lower rates.
"Why are we getting this disconnect between what you're saying and doing, and how the market is reacting, because everybody in this room will agree that the high dollar is not helping this economy," Mr Bayly said.
Mr Wheeler rejected criticism he should be more aggressive, as other countries had.
"If we drop interest rates rapidly to around zero like much of the rest of the world, we'll have an economy that's totally overheating. So just think what the housing market would be doing if we raced to the bottom and use up all our capacity on monetary policy," Mr Wheeler said.
His only respite came in comments from ACT's David Seymour.
"There's been a lot of criticism for not getting back up to one percent," said Mr Seymour. "Has anybody actually complained to you that prices are just so stable?"
The Reserve Bank governor responded by saying a lot of people had told him that the cost of living was pretty low, while those reliant on savings income were worried if deposit rates fell further.
Mr Wheeler will next consider OCR levels on 22 September.