Newsroom Pro's 8 things at 8: Monetary policy reviews; AWOL exports; RMA reforms on hazards

RBNZ governor Graeme Wheeler weighing up the pros and cons: a review of how the OCR is set may mean the next governor won't have the power to decide alone. Photo: Lynn Grieveson

In today's email we look into reports of a review into how the OCR is decided, we ask if a search party needs to be mounted for a government target that seems to have quietly gone AWOL, and we detail a change in the RMA around natural hazards.

1. Monetary policy reviews

The way the Reserve Bank governor decides on the Official Cash Rate is to be reviewed by the current government and/or any new government.

Steven Joyce said in a Fairfax report on Saturday that he had asked Treasury to appoint former State Services Commissioner Iain Rennie to review the Reserve Bank's process for deciding on OCR changes. Rennie will also review whether the bank should be in charge of the legislation it operates under.

The debate is over the Reserve Bank governor's power to be the individual decision maker, which is mandated under the current Reserve Bank Act. Current (but departing) governor Graeme Wheeler uses an internal committee to help him make the decision, but the decision is ultimately his.

This system is rare. The Reserve Bank of Australia, the US Federal Reserve and the Bank of England use committees or boards with outside appointees involved.

Rennie's review is expected to look at whether to introduce a committee structure for OCR decisions, which Treasury has favoured in the past.

Joyce was reported as saying he expected Rennie to report back after the May Budget and that the government had not made any decision to change. He said he wanted to be prepared as the current or any new government looked to appoint a new governor.

Wheeler is stepping down in September after one five-year term and the position well be held for six months by retiring deputy governor Grant Spencer while a full time replacement is found.

2. A committee and an employment mandate

Joyce is not the only one thinking of changing the way the Reserve Bank operates.

Labour Finance Spokesman Grant Robertson is scheduled to lay out Labour's updated policy on monetary policy at a Victoria University School of Government event today.

It will include a broadening of the objectives of the Reserve Bank to include both price stability and full employment, as opposed to just price stability as is the case now.

"Countries like the US and Australia have commitments for full employment within their Central Bank legislation. The evidence is that those countries who have a dual mandate perform better or as well as those with a single mandate at managing inflation," Labour said in a briefing document on the new policy.

Labour would also change the OCR setting process to a full committee with outside appointees.

The committee would include the governor, his or her two deputies, the bank's chief economist, three external appointees and one Treasury official with no voting rights.

The external appointees would appointed by the governor in consultation with the finance minister.

Labour would also ensure the minutes of the committee's decision would be published within three weeks, as is done in Australia and America. This is in tune with a similar approach from the Green Party.

3. Export target missing in action

The need for some sort of change in monetary policy has been a subject of debate for years, partly because of the systematically over-valued nature of the New Zealand dollar for most of the last decade.

This has been a factor in the under-performance of the export sector relative to the non-tradable sector.

I've written a piece over at Newsroom about the Government's once-central target of lifting the export share of the economy from 30 percent of GDP to 40 percent. It has barely been mentioned by ministers over the last year after being stuck at or below 30 percent since 2012.

Interestingly, MBIE has not published a report card on the target since September 2015 and it was not mentioned in last month's flagship Trade Agenda 2030 policy announcement.

Whether the lack of an employment mandate or the single decision maker is the reason for the over-valuation is a matter of debate.

Governor Wheeler's decision in mid-2014 to lift the OCR by 100 basis points proved to be the wrong one after it drove the currency up and had to be reversed when inflation fell below the Reserve Bank's 1-3 percent target band.

The bank has argued it did not make a mistake and could not have foreseen a big drop in commodity prices that was linked to the fall in the inflation rate or a substantial increase in the working age population from the net migration shock.

Some economists have argued, however, that the Reserve Bank was too worried about a potential rebound in inflationary pressures and did not forecast the spare capacity in the economy.

4. IT exports one bright spot

One area of the export sector that is doing well is information technology. It has risen to become the third largest export earner.

Richard MacManus writes in his weekly column over at Newsroom that New Zealand should be investing more in its IT export start-ups than in housing.

He interviews Rod Drury and looks at the challenges facing IT exporters both here and overseas.

5. Natural hazards and the RMA

The debate over last week's passing of the RMA reform bill was mostly around Iwi participation agreements and the Minister's over-ride powers for GMO bans, but there were also major changes to the way Councils have to treat natural hazards.

Lynn Grieveson reports over at Newsroom about how councils will now have to think much more carefully before they allow housing developments on flood plains and in low-lying coastal areas because of these little-noticed reforms buried within the latest changes to the RMA.

Although these reforms don't apply to existing homes, councils are becoming more aggressive about adding information to LIMs warning property buyers of the risks of flooding in severe weather events or due to rising water levels.

The passing of RMA reforms means councils are now on firmer ground when it comes to making zoning decisions and refusing consents on the grounds of natural hazards.

6. Dead on arrival

This week Labour MP Ruth Dyson's Education (Teachers’ Code of Ethics) Amendment Bill will be up for debate.

But, as Shane Cowlishaw reports, it looks dead on arrival because a draft code of standards being proposed by the newly-formed Education Council is getting a positive reaction.

7. Coming up...

Prime Minister Bill English is scheduled to hold his weekly news conference at 4 pm today, while Parliament is sitting this week before a two-week break over Easter and ANZAC weekend.

David Cunliffe is scheduled to give his valedictory address on Wednesday.

8. One fun thing...

Bill English appears to think he is onto a winner with his pizza menu suggestions. He posted a twitter update over the weekend of him taking a cooking lesson with My Food Bag's Nadia Lim. They were eating pizza, although not the tinned spaghetti and pineapple kind.