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REFILE-UPDATE 1-New RBNZ head backs inflation goal, douses intervention talk
(Corrects spelling of "head" in headline)
* Inflation, financial system focus of policy
* Says while NZ$ high, intervention to cap it would not work
* Approach seen signalling no major changes
By Naomi Tajitsu
WELLINGTON, Oct 26 (Reuters) - The Reserve Bank of New Zealand is focused on keeping inflation in check and the financial system healthy, prerequisites for a stronger economy, the central bank's new governor said on Friday as he doused expectations of measures to lower the currency.
Graeme Wheeler made the comments in his first public speech as governor, a day after the central bank held the official cash rate (OCR) at a record-low 2.5 percent.
"Price stability and financial stability remain the Reserve Bank's central objectives for monetary policy and prudential policy," said Wheeler, who took over from Alan Bollard at the end of last month.
"Our economy is growing at an annual rate of around 2 percent and the Reserve Bank has scope to lower interest rates if needed," he said, but added it was not the role of monetary policy to target growth rates.
One analyst said the speech showed there would not be any major surprises from a Wheeler-led central bank.
"He is not going to revamp the monetary policy framework or introduce quantitative easing and declare a futile war on the exchange rate," ANZ senior economist Mark Smith said.
Wheeler said the economy would benefit from a lower exchange rate if it could be achieved without compromising other policy goals, and so while lower interest rates might initially push down the currency there was unlikely to be a sustained impact.
"If we reduced the OCR without sound reasons, the exchange rate might drop initially but rise later when the inflationary implications of the rate cut became clear," Wheeler said.
The New Zealand dollar has gained around 10 percent since hitting its low point for the year in early June.
The RBNZ had clear criteria for currency intervention, including whether it would work, whether the currency was exceptionally high, and whether the market conditions were right -- and Wheeler indicated those conditions had not been met.
"It makes little sense to risk incurring losses to taxpayers by intervening when currency flows supporting the New Zealand dollar are particularly strong."
Wheeler also dismissed the practicality of capital controls, saying they would damage the credibility and stability of the financial sector, and increase the real cost of capital.
The kiwi dollar fell nearly half a cent to a low of $0.8159 after the comments, before settling back around $0.8190.
Wheeler said his policy agreement with the government had reinforced the importance of controlling inflation, in particular aiming for the mid-point of the 1-3 percent target band.
"Over time, attaining this outcome should help to anchor inflation expectations around the mid-point."
He noted the central bank also had macro-prudential tools, such as core funding ratios, capital buffers, sectoral risk weights, and housing loan-to-value ratio limits, to deal with any inflation bubbles that developed.
Quantitative easing of the sort undertaken in the United States, Europe, and Japan were not needed in New Zealand, he said. (Editing by John Mair and Paul Tait)
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