NZ central bank study stated financial tightening should have started earlier

August 29, 2023: NZ central bank study stated financial tightening should have started earlier, as political scrutiny of the bank boosts.

As the country heads to an election in October, opinion polls show the opposition leading the center-left Labor government, which has held office since 2017.

National’s platform includes returning the Reserve Bank of New Zealand’s, or RBNZ, goal to a single target of keeping inflation amid 1% and 3% and jettisoning recent additions of an employment mandate.

The election promise follows increased criticism of the RBNZ over its response to rampant inflation, reflecting heightened global scrutiny of other central banks, many of which were seen as too slow to tighten monetary policy.

“New Zealanders need confidence that the Reserve Bank will not deprioritize inflation in pursuing other goals,” National Finance spokesperson Nicola Willis said.

While the RBNZ was among the first in the developed world to start raising rates in October 2021, annual inflation is currently running at 6.0%, still far above the bank’s target of 1% to 3%.

The Labor administration 2018 added sustainable maximum employment to the central bank’s mandate, arguing that the expanded remit brought it into line with other central banks.

In 2021, it tasked the central bank with considering the impact of policy decisions on home prices, although this was optional.

While shifting away from these responsibilities would unlikely lead to any immediate shift in interest rates, analysts say it may give the RBNZ a more hawkish bias if it focuses solely on managing inflation.

Darren Gibbs, a senior economist at Westpac, said when the central bank’s mandate includes an employment goal, it might be “a little less aggressive or not move quite as quickly” on rates.

National’s pledge comes as the relationship amid legislators and the central bank becomes more complex.