The Reserve Bank of New Zealand will explicitly include employment in its policy targets, ending a sole focus on price stability, and the bank will move to policy by committee instead of leaving interest rate decisions to the governor alone.
The changes were outlined as Finance Minister Grant Robertson and governor-designate Adrian Orr signed a new policy targets agreement. The new PTA re-iterates the goal of keeping annual CPI inflation between 1 percent and 3 percent over the medium term, with a focus on the mid-point of 2 percent. But along with a goal of maintaining price stability, the central bank will have a goal of "supporting maximum sustainable employment within the economy," the new PTA says.
"The Reserve Bank's flexible inflation targeting regime has long included employment and output variability in its deliberations on interest rate decisions," Orr said in a joint statement. "What this PTA does is make it an explicit expectation that the bank accounts for that consideration transparently."
The announcement also includes the first phase of a review of the Reserve Bank Act including a new monetary policy committee (MPC) for decision making. At present policy decisions are the final call of the governor alone although in practice the bank's internal governing committee has made decisions on monetary policy.
Robertson said a bill will be introduced to Parliament in the coming months to implement the Cabinet's decisions on recommendations from Phase 1 of the review. "As well as legislating for the dual mandate, this will include the creation of a committee for monetary policy decisions," he said.
