Reserve Bank gets targets certainty

Finance Minister Grant Robertson has signed an unchanged policy targets agreement (PTA) with the Reserve Bank, and has set in motion a two-stage review of the Government’s monetary policy framework.

The first phase would focus on the coalition agreement with NZ First that agreed to add the goal of ‘‘maximising employment’’ to the current price stability objective contained in the Reserve Bank Act.

But there would be no specific numerical target for unemployment, as Robertson made clear when he announced Labour’s policy in April.

It would also address the commitment to provide for a committee decision-making model for monetary policy decisions, instead of vesting the power in the central bank governor alone.

Robertson said the review would also look at whether changes were required to the role of the Reserve Bank Board after the changes to the decisionmaking model.

The current PTA would remain in force through to March when the term of Acting Governor Grant Spencer ends.

Robertson said he was not obliged to sign the PTA, but thought it was appropriate to give confidence that the current approach would continue until a new governor was appointed.

‘‘A new agreement in line with the outcomes of the review would then be negotiated,’’ he said.

The current 1 to 3 per cent

"This Government is determined to focus on creating more jobs and higher wages for New Zealanders." Finance Minister Grant Robertson

inflation target band would be retained.

The second phase of the review would see Treasury and the Reserve Bank produce a list of areas for further investigations of the bank’s activities in consultation with an Independent Expert Advisory Panel that would be set up to advise on both phases.

The list, and the next steps for the review, will be outlined in early 2018, Robertson said.

That work will incorporate the macro-prudential framework review already set down for 2018.

Robertson said the current Reserve Bank Act was 30 years old and while it had served the country well in general, now was the time to ensure it was still the most effective and efficient model.

‘‘This Government is determined to focus on creating more jobs and higher wages for New Zealanders. It is in our DNA to ensure Kiwis have the best possible quality of life through the best employment opportunities. Every part of the economic apparatus needs to play its part in this, including monetary policy.’’

He said the changes proposed were in line with other central banks. The US and Australia, for instance, had dual or mixed mandates.

‘‘We are determined to progress them at the same time as maintaining the operational independence of the bank.’’

Price stability would remain a focus of monetary policy.

Robertson said if the new rules had been in place, it may have led the bank to make different decisions in 2014 when it hiked the official cash rate. But those decisions were up to the independent central bank.

Asked if the currency would be mentioned, he said he was not looking to have it included in the PTA.

But he said he was committed to a strong, export-led economy, and the review would give the best possible advice on the language used.