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RBNZ Reform Could Potentially Lower Rates, Finance Minister Says … – Bloomberg

Reforming the Reserve Bank of New Zealand’s monetary policy mandate could potentially result in lower interest rates, the new finance minister said.

Requiring the central bank to target full employment as well as price stability when making rate decisions will ensure its objectives are more aligned with the well-being of New Zealanders, Grant Robertson said in a television interview Sunday. When asked if that meant lower interest rates, he said “potentially, it could.”

“What it means is that when the Reserve Bank is making its decisions about the official cash rate, when it’s thinking about monetary policy, of course it thinks about managing and controlling inflation, and that’s vital,” said Robertson. “But also it thinks about other goals in the economy such as making sure that we maximize employment.”

The new Prime Minister Jacinda Ardern last week said she’d like to see the jobless rate fall below 4 percent from its current 4.8 percent level, causing concern among investors that such a target would be imposed on the central bank. Robertson, however, said that 4 percent was a government aim and the RBNZ wouldn’t have a numerical target.

“That is our goal as a wider government, but I’m realistic about what the role of the Reserve Bank is in achieving that goal.”

New Governor

Prior to the election, Ardern’s Labour Party said it also wanted the RBNZ’s policy to be decided by a committee that includes external members, rather than the governor as lone decision maker. While Robertson didn’t discuss that proposal in the interview, he said the central bank’s mandate wouldn’t change until a new governor was appointed.

“I’m very conscious of the fact we have a governor due to be appointed in March next year,” he said. “For now, the policy targets agreement stays — that’s the agreement we work under until a new governor is appointed.”

The RBNZ cash rate has been at a record-low 1.75 percent for a year as New Zealand’s economic growth outlook weakens and inflation slows. Traders are predicting a more than 50 percent chance of a rate hike in August next year, although the central bank predicts it won’t raise rates for two years.

RBNZ Reform Could Potentially Lower Rates, Finance Minister Says … – Bloomberg}

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