RBNZ to decide on interest rates in Q2

Bloomberg

The Reserve Bank of New Zealand’s (RBNZ) new monetary policy committee with external members could begin deciding on interest rates in the second quarter of next year, Finance Minister Grant Robertson said.
Legislation to enact the government’s RBNZ reforms should pass into law by April, which could allow the enlarged policy committee to begin deliberations as soon as May, Robertson said in an interview in Wellington. The bill receives its first reading in parliament, after which it needs to go through a lengthy select committee process.
“We want to move this through the parliament in a way that gives people the opportunity to have input but gets it through efficiently,” Robertson said. “As soon as we can get it passed and assented, then we can have the committee operating, but it then has to fit into the cycle of monetary policy statements.”
Along with a dual mandate that compels the RBNZ to have regard for employment as well as prices, the new committee is part of the biggest shakeup at the central bank since it pioneered inflation targeting three decades ago. While details of exactly how the committee will function have yet to be thrashed out in a charter with RBNZ Governor Adrian Orr, Robertson said one of the aims of the reforms is to provide more information to the market about what the bank is thinking.
He confirmed that when the committee cannot reach decisions by consensus, his preference would be for non-attributed voting to be published.
The MPC will replace the current system of an internal RBNZ committee deciding on rates and the governor taking sole responsibility for the decision. It will consist of four RBNZ members, three external experts and one non-voting Treasury Department official.
Robertson said the process to find qualified people to appoint as external members had already begun, and that he hoped there will be female representation on the committee. Members could come from various sectors, including academia and unions, but would need to bring an understanding of the real economy, he said.
Robertson rejected the notion that the reforms are whittling away the central bank’s independence through measures such as placing a Treasury official on the policy committee and giving the finance minister the power to appoint the deputy governor.
“Absolutely not. The independence of the bank particularly in making monetary policy decisions is protected,” he said. “What we are trying to do here is make sure that monetary policy and the work of the bank more generally plays its part in the support of a more productive and sustainable economy in New Zealand.”
Robertson said he expects economic growth to pick up in second half of the year as fiscal stimulus kicks in, and predicted business investment will hold up despite a drop in confidence.

‘About Right’
Annual economic growth slowed to 2.7 percent in the first quarter after business confidence slumped amid uncertainty about plans of the Labour-led government, which took office in October. Robertson said new policies such as increased assistance for low-income families, which took effect on July 1, and a program to build affordable houses for first-home buyers will help stoke consumption and growth.

“We think these things will at least in the short term stimulate a little bit more activity,” he said, adding Treasury continues to forecast growth of around 3 percent this year “and all I’m reading says that will be about right.”
Wage inflation is projected to average more than 3 percent a year over the next four years, up from about 2.2 percent the past four years, according to Treasury Department forecasts in the May budget. Consumer price inflation is forecast to rise to 2 percent over time.
“If it stays in that pattern I’m comfortable with that,” Robertson said. “The indications I am seeing are that those inflation forecasts are going to stay there.”