Today marked the first reading of the Reserve Bank Act of New Zealand (Monetary Policy) Amendment Bill. The bill, if passed, is expected to set employment alongside inflation within the central bank’s monetary policy mandate.
The new policy targets agreement (PTA) requires monetary policy to be conducted so it supports maximum levels of sustainable employment. The Bill is expected to pass its first reading tonight. Under the new PTA, the Reserve Bank still has to keep future annual CPI inflation between 1 and 3 percent over the medium-term, with a focus on keeping it close to 2 percent.
In Parliament today, Adams questioned why the dual mandate had been introduced “given the employment rate was so low when this government came into office, and there has never been a tension between unemployment and inflation since the Reserve Bank Act came into force nearly three decades ago”. The party is set to vote against the dual policy mandate.
In response, Finance minister Grant Robertson said monetary policy should “contribute to the growth of a more productive and sustainable economy”. Robertson said he wanted to look after the “real economy” by keeping tabs on employment numbers. He added countries that have a dual mandate "tended to keep unemployment under control better” than those with a single mandate.
The new PTA has received support from economists including Westpac’s Dominick Stephens, who described it as a “formalisation of the bank’s existing flexible approach”. The changes will bring RBNZ monetary policy closer in line to the US Federal Reserve and the Reserve Bank of Australia.
