N.Z. Needs to Maintain Inflation Target, Ex-RBNZ Chairman Says

New Zealand must guard against making its inflation target any looser because of the economic pain required to rein in prices, according to former central bank Chairman Arthur Grimes.

  • “It’s been loosened steadily over the years,” Grimes said in Radio New Zealand interview today
  • “It’s fine as it is now,” he said; “It’s absolutely vital not to loosen the target further”
  • New Zealand’s central bank is required by the govt to keep average annual inflation in a 1% to 3% range in medium term; Governor Graeme Wheeler, who came into the role in September last year, agreed to focus on the 2% midpoint
  • “It’s really important not to expect monetary policy to do too much,” Grimes said; “If you lose the focus of it you can make every outcome worse, even the ones you are supposedly trying to achieve”
  • Grimes stood down as chairman on Sept. 18 after a decade in the role; under the N.Z. model, governor has sole decision making role on policy and board has an oversight role, making sure bank is well run and policy is set in accordance with the target

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