Monday 10th April 2017
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The Reserve Bank's mandated inflation target - the consumers price index - would be put under the microscope as part of a broader review of the central bank if the Labour Party and its allies win the Treasury benches in September.
Finance spokesman Grant Robertson today announced the first two steps in an overhaul of monetary policy that he says struggled to meet the challenges posed by the global financial crisis almost a decade ago, which spurred major central banks to massively expand their balance sheets in an effort to prop up the financial system, and make the response and recovery more manageable.
Robertson said he would add an overt commitment to full employment in the purpose of the Reserve Bank Act alongside the existing inflation target, aligning fiscal and monetary policies to create what he describes as "decent work with high wages".
A Labour-led government would keep the central bank's 1-to-3 percent target band as set in the policy targets agreement, however Robertson would work with the Reserve Bank to review whether the CPI measure was still appropriate given "the most vulnerable are the most affected by rising prices," he said at a Victoria University School of Government seminar in Wellington.
"CPI is missing not only chunks of housing costs but also has not yet in my view been updated sufficiently to reflect e-commerce and the way e-commerce is influencing prices," Robertson said. "I do think that's an area that needs significant further work."
Roberston said that review would need to include the impacts of the decisions the bank makes on asset prices.
Statistics New Zealand is responsible for setting the basket of items that makes up the CPI, and last reviewed the measure in 2014 when it added 15 items and removed 12. Statistics NZ makes those judgements based on their share of household spending. The department began its latest three-yearly review last year but the process was delayed by the November earthquake.
The other leg to today's announcement was the introduction of a decision-making committee, with a minority of external voting members, to set policy, something that is informally observed by the bank even though the power to make policy decisions rests solely in the hands of the governor. Roberston said he would also want the minutes of those meetings to be publicly released three weeks later to provide greater transparency and boost the public's confidence in the decision-making process.
Former Reserve Bank economist Michael Reddell also spoke at the seminar, and while largely in favour of the proposed changes to the decision-making committee, he was less convinced about the introduction of employment to the purpose of the act.
Council of Trade Unions economist Bill Rosenberg was another speaker at the seminar and welcomed the debate on how monetary policy should be formed, and said he would like the regime to address the exchange rate and asset prices more explicitly.
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