This was something the RBNZ was open to, as it was wary the MPC’s credibility could take a hit if the public was unclear what its strategy was. For example, people could question the extent to which the RBNZ would hike interest rates to cool inflation if this caused a lot of job losses.
Robertson also didn’t change the wording around the committee having a “focus on keeping future inflation near the 2 per cent mid-point”.
The RBNZ last year noted changing the inflation target now could undermine confidence in the central bank, or prompt people to think the Government was “shifting the goalposts” to make it easier for the RBNZ to meet its target.
Robertson added a line to the price stability objective, saying the MPC should “discount disturbances to inflation that are expected to be temporary in a manner consistent with meeting the medium-term target”.
He put less emphasis on the contested requirement for the MPC to assess the impact of its decision-making on the Government’s objective of “supporting sustainable house prices”.
This will no longer be an “operational objective”. Instead, the obligation has been put under an expanded “context” section of the remit.
The RBNZ wanted the requirement removed from the remit altogether.
The context section also includes a new requirement for the MPC to explain “how financial risks were considered in choosing the mix of monetary policy tools when announcing changes to monetary policy that would materially increase the Reserve Bank’s exposure to financial risk”.
This addition comes as the MPC’s money printing, or Large-Scale Asset Purchase programme, has been criticised for exposing the Crown’s balance sheet to an enormous amount of interest rate risk.
While the programme lowered interest rates and helped stimulate the economy in 2020 and 2021, it is eventually expected to directly cost the Crown about $9.5 billion.
Robertson added another line to the “context” section of the remit.
The MPC now needs to seek to “understand material interactions between fiscal and monetary policy” and support “information-sharing between monetary and fiscal authorities”.
These requirements come as a review the RBNZ did into the way it conducted monetary policy in recent years found it could’ve had more regard for the stimulus the Government provided the economy when Covid-19 came along.
The combination of record-low interest rates, large amounts of government spending, and tight border controls around the world helped create the inflationary problem many economies are now grappling with.
Finally, Robertson tweaked the wording of the price stability objective so it aligns with the Reserve Bank Act. The MPC will have to “achieve and maintain”, rather than “keep” inflation between 1 and 3 per cent.
Both National and Act are campaigning on removing the MPC’s employment target, so it focuses on inflation alone.
Making this change would require legislative change, so was outside of the scope of the remit review.
The Government is required to review the Monetary Policy Remit and MPC Charter again within the next five years.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.
