Changes to the Reserve Bank’s policy targets agreement, a shift to decision-making by committee and a new governor in Adrian Orr are unlikely to herald a change in the interest rate outlook, economists say.
In a key change outlined on Monday, the central bank will now include employment in its policy targets, ending a sole focus on price stability.
Signed by Finance Minister Grant Robertson and governor-designate Adrian Orr on Monday, the new PTA reiterates the goal of keeping annual CPI inflation between 1 per cent and 3 per cent over the medium term, with a focus on the mid-point of 2 per cent.
But along with a goal of maintaining price stability, the central bank will have a goal of “supporting maximum sustainable employment within the economy,” the new PTA says.
At a media briefing today, when asked if employment was already at a sustainable level Mr Orr said he was “very, very pleased with the economic state of New Zealand over recent years”.
Unlike the inflation target, there will be no hard number on employment.
However, the central bank will be required to consider employment outcomes when formulating policy and to outline how it does that in the monetary policy statement.
ANZ Bank New Zealand chief economist Sharon Zollner said the new PTA was “similar in spirit to its predecessor and we don’t think it will alter the conduct of policy much”, a sentiment backed by Westpac Banking Corp New Zealand chief economist Dominick Stephens.
But National Finance spokeswoman Amy Adams called it an unnecessary change given New Zealand’s strong economy and rate of employment.
She said government policies on employment, investment and immigration had a bigger impact on the economy and the government should focus on these.
“We’ll be watching closely to ensure Grant Robertson doesn’t point the finger at the Central Bank should job creation and employment slow,” she said.
The announcement, part of the first phase of a review of the Reserve Bank Act, included another change whereby a committee will take over responsibility for bank decisions.
The bank governor previously had sole authority for monetary policy decisions, but Mr Robertson said there had “been greater recognition in recent decades of the benefits of committee decision-making structures”.
The governor will now act as the chair of the committee of seven voting members, made up of four Reserve Bank staff and three external members.
Members will be appointed for four-year terms with the meeting minutes and votes to be made public, but not attributed to specific members.
Also, the committee will include a Treasury official who will act as an observer, something Robertson said not everyone agreed with.
However, Mr Orr said this would not affect the bank’s independence and he is a firm believer in open and transparent decision-making.
