New Zealand launches central bank review with eye on lifting employment

WELLINGTON: New Zealand launched a review of its central bank’s mandate yesterday, making good on an election promise to include maximising employment as a monetary policy goal and providing investors with some relief by excluding currency targets from its overhaul.

New Zealand Finance Minister Grant Robertson said there was no plan to include the New Zealand dollar, the world’s 11-most traded currency, in the bank’s revised mandate – remarks that pushed the Kiwi up around a quarter of a US cent.

The announcement suggested that the new Labour-led government will not make radical changes to the central bank’s mandate, a prospect that had caused some market angst in recent weeks.

It also signalled that Labour’s expansionary fiscal policy would not automatically result in tighter monetary policy in coming years.

Robertson said he did not expect the proposed alterations to have any immediate impact on monetary policy, but acknowledged that in a situation of high unemployment and slightly higher inflation, rates could be lowered.

“My view is that this shouldn’t have a dramatic impact, certainly in the near-term,” he told reporters in Wellington.

The Kiwi has fallen more than 5 per cent since September’s election, due in part to uncertainty about the new government’s plans for the Reserve Bank of New Zealand (RBNZ).

It popped up to as high as US$0.6957 on Tuesday on confirmation the currency would not be a part of the review. It was last trading at US$0.6939.

Central bank reform was a centrepiece of the Labour Party’s election campaign, which saw leader Jacinda Ardern form a government with assistance from the nationalist New Zealand First party.

Ardern told Reuters on Tuesday that she had no concerns about the currency’s recent decline.

A wider central bank mandate that also factors in employment could open the door for the centre-left coalition government to boost spending on social services without heightening the need for the central bank to tighten policy, analysts say.

“The RBNZ will not be so quick to move higher in response to expansionary fiscal policy,” said Christina Leung, economist at the New Zealand Institute for Economic Research. — Reuters