RBNZ reform could lower rates, says finance minister

Bloomberg

Reforming the Reserve Bank of New Zealand’s monetary policy mandate could potentially result in lower interest rates, the new finance minister said.
Requiring the central bank to target full employment as well as price stability when making rate decisions will ensure its objectives are more aligned with the well-being of New Zealanders, Grant Robertson said in a television interview on Sunday. When asked if that meant lower interest rates, he said “potentially, it could.”
“What it means is that when the Reserve Bank is making its decisions about the official cash rate, when it’s thinking about monetary policy, of course it thinks about managing and controlling inflation, and that’s vital,” said Robertson. “But also it thinks about other goals in the economy such as making sure that we maximize employment.”
The new Prime Minister Jacinda Ardern last week said she’d like to see the jobless rate fall below 4 percent from its current 4.8 percent level, causing concern among investors that such a target would be imposed on the central bank. Robertson, however, said that 4 percent was a government aim and the RBNZ wouldn’t have a numerical target. “That is our goal as a wider government, but I’m realistic about what the role of the Reserve Bank is in achieving that goal.”
Prior to the election, Ardern’s Labour Party said it also wanted the RBNZ’s policy to be decided by a committee that includes external members, rather than the governor as lone decision maker. While Robertson didn’t discuss that proposal in the interview, he said the central bank’s mandate wouldn’t change until a new governor was
appointed.
“I’m very conscious of the fact we have a governor due to be appointed in March next year,” he said.
“For now, the policy targets agreement stays — that’s the agreement we work under until a new governor is appointed.”
The RBNZ cash rate has been at a record-low 1.75 percent for a year as New Zealand’s economic growth outlook weakens and inflation slows. Traders are predicting a more than 50 percent chance of a rate hike in August next year, although the central bank predicts it won’t raise rates for two years.
New Zealand’s dollar has slumped more than 6 percent since the eve of the nation’s Sept. 23 election and has accelerated its decline since center-left Labour got the support it needed to form a government after nine years in opposition. Investors are wary that new policies, such as reduced immigration, may curb economic growth. The lack of detail about the central bank reforms has added to nervousness.
In the interview, Robertson noted that full employment was already targeted by the US Federal Reserve and the Reserve Bank of Australia. “We’re actually just bringing our monetary policy up to speed to make sure it’s contributing to the wider outcomes we want in the economy,” said Robertson. “It’s a reform and it’s one that I think people can have confidence in because it does work in other jurisdictions.”