New Finance Minister Grant Robertson has kept the financial ship steady as the Government prepares for a review of the Reserve Bank Act.
Robertson used his first press conference to re-sign the existing Policy Targets Agreement alongside acting Reserve Bank Governor Grant Spencer.
The agreement keeps inflation targeting at the centre of monetary policy, but an upcoming review could change that.
That review will happen in two phases, with the first to begin immediately and an independent expert advisory panel assembled to assist both phases.
The first will focus on the election commitment to add maximising employment to the current price stability objective of the bank and to provide for a committee decision-making model for monetary policy decisions.
Reforming the Reserve Bank was one of the key coalition demands from New Zealand First.
Leader Winston Peters wanted a Singaporean-style model that included currency control, but Robertson said that was unlikely to happen.
The second phase will consider what areas of the bank’s activities warrant further investigation and an initial list would be outlined early next year. An already-scheduled macro-prudential framework review would also be included.
“I believe this is very important work for New Zealand. Our monetary policy framework with its focus around inflation, or price stability and inflation control, has served New Zealand well in general, but the act itself is a product of its time in the late 1980s," Robertson said.
"There has been significant pressure on monetary policy in recent years, particularly in wake of the global financial crisis. It’s my view that monetary policy should play its part in the overall economic goals of our government. We are committed to producing high quality jobs that pay decent wages,” he said.
Robertson said the independence of the bank was important and the current 1-3 percent inflation band with a target of two percent would be retained.
The changes were unlikely to have an immediate impact on mortgage rates, he said.
“I think New Zealanders appreciate and like the fact their mortgage rates stay steady and that they have certainty about that. This decision is about making sure that we take into account all of the factors that will help grow the economy and for us it’s important that employment is included in that. My view is that this should not have a dramatic effect, certainly in the near term. There are many other things that impact on mortgage rates.”
New Governor up for it?
Applications for a new Governor closed on July 8, when the political landscape was vastly different.
Robertson was asked if whoever took up the new role would be ready to make the required changes.
“I’ve met with the chair of the board and he has assured me that process is underway and well under way and going well. I sought an assurance from him that any candidates he was interviewing would be ones who would be able to implement a change to policy along the lines we’re going, he expressed his confidence about tht but in the end the process itself lies in his hands.”
Newsroom also asked Robertson if he had seen a review of the bank undertaken by former State Services Commissioner Iain Rennie that was requested by former Finance Minister Steven Joyce.
He said he was yet to see it, but had asked Treasury about it.