Will Reserve Bank of New Zealand move from inflation targeting to having a dual objective?

I had already blogged about it in April 2017.  The talks were already on that if Labour Party comes to power in upcoming elections then the central bank might be given wider powers.

Now post elections as coalition with Labour Party has come to power, the expectations of a renewed mandate for the central bank have come to fruition.

The kiwi dollar came under renewed selling pressure overnight, after New Zealand’s new Labour government announced some of its policies. Among other pledges, such as wanting to raise the minimum wage and being committed to fiscal responsibility, the new PM announced the government is seeking to reform the RBNZ Act. These reforms will seek to expand the central bank’s mandate to include full employment as well, in addition to price stability.

Reuters has a longer article:

For 28 years, New Zealand’s central bank has had the single aim of keeping inflation between a set range. But Labour wants to add employment to the bank‘s mandate, a goal shared by NZ First which also wants to broaden the Reserve Bank of New Zealand’s (RBNZ) focus to include greater management of the local dollar’s value against other currencies.

“It’s a huge change. We’ve had over 25 years of an extraordinarily successful monetary policy that has been copied around the world,” said Arthur Grimes, RBNZ’s chief economist in the early 1990s and Board Chair between 2003 and 2013. Any change without careful consideration and analysis would be “extraordinary”, he added.

New Zealand was first to formally grant its central bank independence and first, in 1989, to introduce an official inflation target after grappling with annual price rises as high as 18 percent during the 1980s.

Though its economy is only the world’s 53rd largest, New Zealand has earned a reputation for its economic experimentation and free market approach over the past three decades.

Its inflation targeting soon became the global economic orthodoxy.

“I don’t think people treated it terribly seriously (at first),” said Ted Truman, a former U.S. Federal Reserve official, who spent a month in New Zealand 16 years ago researching inflation targeting. “Five or six years later it was much more respected and people flocked to New Zealand to find out how they were doing it… which is why I was there.”


It discusses whether Fed’s dual mandate or Singapore’s exchange rate policy can be adopted:

NZ First also favors greater intervention in the foreign exchange market, with leader Winston Peters even touting a Singapore-style system where a currency target path replaces official interest rates and the central bank intervenes to manage currency swings.

Paul Dales, chief Australia and New Zealand economist at Capital Economics in Sydney said this would represent “a complete shake-up” of New Zealand’s monetary policy and was unlikely to materialize.

He said greater central bank intervention was also unlikely given the RBNZ is bound by its “traffic light” system which guides any intervention and that any changes “would be tantamount to political interference in the central bank”.

Instead, Labour could agree to make a mention of the exchange rate in the central bank’s policy target agreement, along with price stability and full employment.

“If they put something like that in, it would be a rhetorical win for Winston … it wouldn’t necessarily change very much in substance at all,” said Michael Reddell, a former RBNZ official.

Interesting space to watch…

2 Responses to “Will Reserve Bank of New Zealand move from inflation targeting to having a dual objective?”

  1. Expert Panel appointed to review Reserve Bank of New Zealand's to widen the price stability mandate… | Me Stock Broker Says:

    […] talk of widening the pioneering price stability mandate of RBNZ started with Labor Party campaigning that it shall include employment in the central bank goals. Now with Labor Party at helm, the talks only […]

  2. Expert Panel appointed to review Reserve Bank of New Zealand’s to widen the price stability mandate… – Courtier en Bourse Says:

    […] discussion sur l'élargissement du mandat pionnier de stabilité des prix de RBNZ a commencé avec la campagne du parti travailliste qui inclura l'emploi dans les objectifs de la banque centrale. Maintenant que le Parti travailliste est à la barre, les […]

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