Criticism of bank's inflation policy 

Economic research firm BERL is telling the Reserve Bank its policy of targeting inflation has failed and should be dumped.

The bank expects inflation to climb to peak at 4.7% later this year, well above the 3% cap it has been trying to maintain.

Senior economist Ganesh Nana says the headlong pursuit of inflation control hasn't worked.

"Inflation targeting has failed the needs of the New Zealand economy.

"That the RB, in their forecast, is prepared to accept four consecutive years of negative or nil employment growth is clear evidence that New Zealanders are paying a very high price indeed for the inflation control and targeting focus of economic policy", says Nana.

He says every time inflation gets above 3% we start throwing people out of jobs.

Nana says it is time to adopt an investment and export friendly environment that looks at income gains to develop sustainable productivity.

Reserve Bank Governor Alan Bollard has left the cost of borrowing at 8.25% but has signalled that cuts are on the way to help boost what he is forecasting will be a seriously flagging economy.

Bollard told Breakfast Business that there are several factors that will allow an interest rate cut at some stage this year.

He says domestic inflation on tradeables is coming off and the New Zealand economy is slowing significantly.

"Those two things together mean that we've got confidence to look forward and expect that we'll be able to cut (interest rates) this year," says Bollard.