Bill English. Photo / Mark Mitchell

Bill English. Photo / Mark Mitchell

National is accusing the Government of cynical politicking in calling the monetary policy framework into question when it has no alternative to offer.

"They are clearly looking for some way of dealing with cost of living issue through the campaign by pretending that if they relax inflation-targeting somehow people will be better off," National's finance spokesman Bill English said.

"We believe they will be worse off because they will face higher interest rates for longer and faster-rising prices."

In the House on Wednesday, Associate Finance Minister Trevor Mallard said the Reserve Bank Act, now 20 years old, had not worked as well in its second decade as it had in its first.

"Over recent years under both governors [Don Brash and Alan Bollard] inflation has been driven by increased domestic demand that stems from a buoyant housing market, fuelled by cheap foreign capital attracted by a stable economy and relatively high interest rates," Mallard said.

"Now we have inflation challenges driven by record high international prices of food and oil. In both cases the tools available to the Reserve Bank have not been able to address those problems"

The Government was open to looking at alternatives, he said.

But when pressed yesterday about what alternatives there might be and whether a change to the inflation target band might be one of them, Mallard said, "I'm not proposing any change at all and I want to make it absolutely clear no decisions or current proposals are before the Government".

It was clear there was no broad cross-party consensus for change. "But the question is whether there is enough minor party support for something we would want to do," Mallard said.

But as for what that might be: "There will no doubt be a wide range of options. What I have signalled is almost like a determination to look seriously at those options."

He expected the finance and expenditure select committee, which is expected to conclude its inquiry into the monetary policy framework within a month or so would come up with some.

English does not.

It is merely the latest in a series of inquiries, including the Svensson review in 2001.

"And no one has come up with a better way of doing it yet. The Reserve Bank is using the flexibility it has in the policy targets agreement to the point that inflation is forecast to rise to close to 5 per cent," he said.