RBNZ’s 2% Inflation Focus May Be Up For Discussion, Says Robertson Says

  • Finance Minister committed to keeping RBNZ’s 1-3% target band
  • Says dual mandate could mean looser policy in some situations

New Zealand Finance Minister Grant Robertson said he expects to discuss the central bank’s current focus on the 2 percent midpoint of its inflation target band once a new governor is appointed.

“The most important thing for me is that we continue, and we’ve committed to, keeping the band,” he said in an interview Friday in his Wellington office. “I don’t have a proposal at this stage to change the midpoint, but I’m sure when I sit down with a new governor that may be a topic that comes up. It is possible for us to take another look at that when a new governor is appointed.”

Grant Robertson

Photographer: Hagen Hopkins/Getty Images

Former governor Graeme Wheeler agreed to focus on the midpoint of the Reserve Bank’s 1-3 percent target band when his tenure began in 2012. The 2 percent focus was designed to counter perceptions that the central bank had gone soft on inflation, which had averaged 3 percent in the five years through 2011. Since then, it has averaged 1 percent.

Robertson, who was sworn in little more than two weeks ago after his Labour Party ended nine years of rule by the conservative National Party, plans to shake up the central bank.

He will add full employment to the RBNZ’s objectives, creating a dual mandate similar to those of the Federal Reserve or the Reserve Bank of Australia, which he said could result in looser monetary policy in some situations.

Jobless Goal

The government has set a goal of reducing the jobless rate to 4 percent within its first three-year term, and the RBNZ will have a role to play, Robertson said. The unemployment rate was 4.6 percent in the third quarter, and the central bank projects it will be at 4.4 percent by early 2020.

“We want every part of the economic architecture to be playing its role,” Robertson said. “That includes the central bank. I’m not naive to think they have some magical ability to do that, but we want them to be putting employment, employment outcomes and the overall well-being of New Zealanders right up there.”

Robertson also plans to expand the Reserve Bank’s policy committee by adding three external members to it. He dismissed concerns raised yesterday by RBNZ Acting Governor Grant Spencer that having outsiders speaking publicly about monetary policy could increase volatility on financial markets and create “a bit of a circus.”

No Circus

“Certainly we don’t want it to be a circus and I don’t think it will be,” Robertson said. “We would expect any external appointee would have limitations on their ability to speak outside of the process. We certainly wouldn’t be envisaging them going on a speaking tour.”

He said external experts could be found among academia and former RBNZ staff and board members, while expertise on employment would also be desirable given the bank’s expanded mandate.

Spencer’s caretaker role ends in late March. The RBNZ board is responsible for selecting a new governor, although Robertson has the ability to accept or reject the nominee.

He said he’s conveyed to the board the need for the new governor to be comfortable with the planned changes at the RBNZ. The board expects to make a recommendation on a permanent replacement before Christmas, Robertson said.

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