RBNZ faces mandate review under new government

New Zealand’s freshly formed coalition government is to press ahead with a campaign pledge to review the country’s central bank act.

Incoming prime minister and Labour leader Jacinda Ardern confirmed the plans today (October 24) while setting out a coalition agreement with the New Zealand First party, and a confidence and supply agreement with the Greens.

The review of the Reserve Bank of New Zealand’s mandate was a manifesto pledge by the Labour party, which cited the need for “modernisation and reform” of monetary policy. The party says it will protect the RBNZ’s independence while ensuring monetary policy “plays its part in meeting our economic goals”.

The headline change under consideration would be the move to a dual mandate, retaining the inflation target but adding a commitment to full employment. “The next Labour government is also determined to focus on the creation of decent work with high wages,” the manifesto reads. “We want all parts of our economic system working towards that goal.”

A second element of the review is a change to the decision-making process, introducing a committee to take monetary policy decisions, including external members. The committee would be expected to publish minutes within three weeks of each decision “noting any dissenting views”.

At present, monetary policy is decided by the governor alone, with advice from the deputy governors and assistant governor for economics, an increasingly rare arrangement worldwide. Labour proposes forming a committee of three external experts plus the governor, two deputies and assistant governor.

Today, Labour’s Ardern told press: “We will focus on sustainable economic development, supporting our regional economies, increasing exports, lifting wages and reducing inequality.”

The need for both a coalition and a less formal agreement with the Green party underscores Labour’s fragile position. The party won just 46 of the 120 seats in the House of Representatives, with nine going to coalition partners NZ First and eight to the Greens, for a narrowly workable majority of 63.

“The majority of people voted for change to the status quo and that’s why we are committed to taking a new approach to how our country is governed and how the economy is managed,” Ardern said.