Mood of the Boardroom: Reserve Bank reforms should go further

“By narrowing the focus of the RBNZ’s mandate, policymakers can ensure the central bank remains dedicated to its core purpose. Long-term price stability is essential for fostering economic growth and, therefore, prosperity, as it allows businesses and households to make well-informed decisions about investment and consumption.” says NZ Initiative Chair Roger Partridge.

Partridge argues they should go further with reforms.

“The incoming government should also shift the RBNZ’s regulatory role to a new institution,” he says.

“Separating monetary policy and prudential regulatory functions is common elsewhere in the world.”

The Reserve Bank of Australia is charged with just monetary policy, while the Australian Prudential Regulatory Authority (APRA) is tasked with financial regulation.

“Separating the functions into two organisations would improve governance and reduce the risk of political interference in the RBNZ’s core mission of price stability,” Partridge argues.

“Creating a separate prudential regulatory body would also ensure a more streamlined approach to financial oversight, allowing the RBNZ to focus on maintaining price stability.”

“The RBNZ’s budget should also be limited to cover its monetary policy role, preventing the institution from engaging in matters beyond its scope, such as climate change and promoting the Māori economy,” he says.

“While these issues are undeniably important, they fall outside the purview of a central bank.

“By constraining the RBNZ’s budget to its core function, policymakers can ensure the central bank remains focused on its primary objective of price stability.”