New Zealand’s new government will seek advice on whether to undertake deeper reforms at the central bank in addition to returning it to a single mandate focused only on inflation.
The government will amend the Reserve Bank of New Zealand Act to remove the existing dual mandate which includes employment, according to coalition agreements published Friday in Wellington. While that move was expected, it also said it will take advice on giving the RBNZ time targets for monetary policy, removing the Treasury Dept. observer from the Monetary Policy Committee and returning to a single decision maker model.
Currently, the RBNZ is required to achieve and maintain annual inflation between 1-3% over the medium term, with a focus on the 2% midpoint. The government will consult on whether to replace “medium term” with specific time-frames.
The center-right National Party, which leads the new government, campaigned before the Oct. 14 election on returning the RBNZ to a sole price stability mandate, saying this was an essential reform to help curb inflation. The extra reforms, which emerged after coalition negotiations with ACT and New Zealand First, would walk back changes implemented by the previous administration led by the Labour Party.
Labour introduced the dual mandate in 2018 and the policy committee including external members a year later. Prior to that, interest rate decisions were the sole responsibility of the governor.
New Zealand Opposition Eyes Quick Change to RBNZ’s Mandate
The additional reforms were championed by the libertarian ACT Party, whose leader David Seymour told reporters Friday he expected the government to move with “great urgency” on the legislative amendments.
An RBNZ spokesman said the bank doesn’t provide comment on current or hypothetical government policies. It has previously said it doesn’t support changing its remit to specify a time-frame within which it should return inflation to target.
