Key denies likely rate hikes a factor in election timing

Prime Minister John Key has denied his decision to call a September 20 election was designed to reduce the electoral impact of interest rate hikes, which are expected to start on Thursday. He also accused Labour leader David Cunliffe of 'playing games' with the independence of the Reserve Bank.

Key told his weekly post-cabinet news conference any rate hikes were actually a sign the Reserve Bank was confident the economy was rebounding strongly, adding both the Reserve Bank and Treasury were now estimating GDP growth was running at around 4%.

He said any future government would have to be careful with its fiscal stance because "monetary policy needs mates."

"If we are the government in the next three years we'll continue be careful in the way that we continue to spend money. We can't be part of the problem when it comes to interest rates. We've got to be part of the solution," he said.

Asked about David Cunliffe's comments on Sunday about how interest rates would be lower under Labour, Key said: "It's a great shame that Mr Cunliffe is playing games with the independence of the Reserve Bank."

Key said reviews of the Reserve Bank Act over the last 10-15 years had not supported substantial change to the Act.

"The only exception is that maybe a committee should decide interest rates as the Federal Reserve does, as opposed to the Governor having sole responsibility," Key said.

"If he's saying that effectively, by making those changes, and riding over the top of the independence of the Reserve Bank he would effectively force interest rates down, that's happened in New Zealand's history and it ended badly and in tears," Key said.

"We are well served by having an independent Governor and independent Reserve Bank. The responsibility of Government is to make sure that fiscal policy is set appropriately, and spends money where it needs to, and doesn't add to inflation pressures and inflation concerns."