Reserve Bank accepts jobs mandate

Incoming Reserve Bank governor Adrian Orr will be required to consider both employment and inflation when setting the official cash rate, but believes most of the time the dual mandate will make no practical difference.

Yesterday, Orr, who becomes the governor of New Zealand’s central bank today, signed the policy targets agreement with Finance Minister Grant Robertson in the Beehive.

For about 30 years the governor’s primary job was controlling inflation, but the agreement signed with Orr requires the central bank to keep inflation in a range between 1 per cent and 3 per cent, as well as ‘‘supporting maximum sustainable employment’’.

Speaking moments after the signing, Orr said that in most circumstances, the dual mandate would not see different interest rate settings than would be the case under pure inflation targeting.

‘‘I would say in general terms it should not make too large a difference because we’re always considering shortterm volatility in employment and output,’’ Orr said.

Changes being directed by the new Government will also see the way decisions are made change considerably.

At present the governor is a sole decision maker. Though the Reserve Bank operates an internal committee to make decisions, the governor could in theory take any decision they wanted.

As part of a review of the Reserve Bank Act, decisions will be made by a seven-member committee, three of which will be from appointees from outside the Reserve Bank.

Robertson also revealed that a Treasury official will sit in on interest rate setting meetings. The official will have no voting powers.

Orr welcomed the move, despite having previously argued against outside appointees contributing to interest rate decisions. ‘‘The fact that the Treasury are there as observers, and only observers, is very, very healthy.’’