Inviting Government to “observe” monetary policy meetings: How RBNZ is revisiting many older ideas which were questioned…

It was interesting to read the letter exchange between Reserve Bank of New Zealand  and NZ Government.

RBNZ press release explains:

The Secretary to the Treasury, Gabriel Makhlouf, has accepted Reserve Bank Governor Adrian Orr’s invitation to attend monetary policy deliberation and decision meetings as an observer from the end of this month.

Mr Orr extended the invitation to deepen Mr Makhlouf’s understanding of the process leading into a monetary policy decision, with the aim of ensuring a smooth transition to a new monetary policy framework.

This invitation comes ahead of the proposed creation of a formal Treasury observer position in the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill. This Bill is currently being considered by the Finance and Expenditure Committee.

As outlined in his letter to the Governor, Mr Makhlouf recognises and respects the highly confidential nature of these meetings. Mr Makhlouf’s letter outlines how he intends to manage issues related to confidentiality, and any actual or perceived conflicts of interest. The letter also details how Mr Makhlouf will avoid any perception of conflict in relation to his statutory responsibility for the Treasury’s debt management function. 

This is interesting. Worldwide, the whole thinking is to minimise government’s role in central banks. The Government representative is there on central bank boards which is also seen as too much interference at times.

But in case of NZ, they are inviting a Government official to “observe” monetary policy meetings of all things. The government person has no voting power but will be preview to discussions and even share his/her views.

In many ways we came to the two ideas of “central banks for price stability only” and “keep governments away from central banks” from Reserve Bank of NZ’s adoption of inflation targeting mandate in 1989. Since the new NZ government in 2017, both these ideas have been redone quite a bit. First, The central bank has recently added employment to its price stability mandate. Second, asking government to be an observant to monetary policy decisions.

I am not saying all this is bad stuff. It is just that times are changing and we are coming back full circle.


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