1. The news that mattered this morning

Building work volumes (as opposed to values) have been flat near record highs for most of the last year as capacity constraints kick in. Chart by ANZ.

'Set the phasers to 2'

Finance Minister Grant Robertson is expected to announce the Terms of Reference for phase two of the Government's review of the Reserve Bank later today, including whether or not to carve out the bank's financial stability role into a new or another institution.

The Reserve Bank currently combines both the monetary policy and financial stability functions into one institution. In some other countries, including Australia, the central bank handles monetary policy and another body handles financial stability.

In Australia, financial stability is handled by APRA, while the Reserve Bank handles interest rate setting. In Britain, the roles used to be separated between the Bank of England (monetary policy) and the Financial Services Authority (prudential policy), but the roles were combined back into the Bank of England after the Global Financial Crisis. The FSA was viewed to have missed the looming failures in the British banking system that forced massive bailouts.

Former Reserve Bank Governor Alan Bollard said during and after the GFC that being able to handle both at the same time made it easier for the Reserve Bank of New Zealand to move quickly on both fronts at the same time.

Phase one of the Reserve Bank review involved inserting 'supporting maximum sustainable employment' into the Policy Targets Agreement between Robertson and new Governor Adrian Orr, as well as moving to a formal monetary policy committee decision making system for monetary policy. A bill to tweak the Reserve Bank Act along these lines is due to be introduced into Parliament later this year.

The phase two part of the Reserve Bank review includes a review of the bank's financial stability role. Some outside the bank have pushed for financial stability and bank and insurance regulation to be broken out of the bank and included in either another authority (potentially the Financial Markets Authority) or a new institution.

See more detail on the various phases in this Treasury backgrounder. The Government is also expected to expand the size of the panel considering both phases of the review from its current make-up of Suzanne Snively, Malcolm Edey and Girol Karacaoglu.

GDP growth slowing?

Some early signs are emerging that economic growth slowed somewhat in the March quarter.

Statistics New Zealand reported details of the the second major component of the GDP figures yesterday, which showed a weaker than expected construction sector in the quarter.

The volume of building work put in place fell 0.9 percent in the quarter after a 1.0 percent rise in the December quarter. Economists had expected a rise of about 0.5 percent. (See chart above)

The first component reported last week showed that March quarter retail spending was flatter than expected, having grown 0.1 percent when 1.0 percent was expected.

Along with weaker business confidence figures last week and a slight slowdown in job advertisements growth, some early signs are emerging the economy may be running out of puff. ANZ's composite indicator of business and consumer confidence is showing a slowdown in economic growth from the three percent that most forecast and down towards two percent.

The full GDP figures are due on June 21 and the other components, including manufacturing, services and exports, could boost the number.

For example, new vehicle sales reported yesterday for May showed record high sales of commercial vehicles, including double cab utes. There were almost twice as many Ford Rangers sold as Toyota Hiluxes.