RBNZ could consider inequality as well as inflation

The Reserve Bank could start considering inequality and climate change when it sets monetary policy in future.

These are among issues that will be considered by the bank in a five yearly review of its monetary policy remit.

This review is required by legislation.

At present the remit requires the bank to pursue low and stable inflation and support maximum sustainable employment. But that is now under review

“The Reserve Bank is seeking feedback to ensure that the remit framework is the best it can be for our legislative purpose, and ultimately for the prosperity and wellbeing of all New Zealanders,” the bank Governor Adrian Orr said.

This new review is the first under new legislation that was passed in 2018.

The RBNZ chief economist Paul Conway said several issues should be considered.

“Do people think the inflation target is about right?” he asked.

“How should we go about supporting maximum sustainable employment? How relevant are major economic trends under public discussion, such as house price sustainability, distributional outcomes, or climate change?

“We hope to see a wide range of views.”

Public consultation is open from 1 June – 15 July.

The idea of broadening the focus of the RBNZ could be controversial. Having the bank focus on full employment as well as inflation has been criticised as muddying the waters for the bank.

The National Party deputy leader Nicola Willis spoke out against it at a recent webinar organised by the Financial Services Council (FSC).

“The key change that we want to see is to make sure that the policy targets agreement is squarely focussed on the price stability goal of keeping within the inflationary target,” Willis told the webinar.

“Adding maximum sustainable employment just clouds the picture.”

Willis said she strongly believed maximum sustainable employment was important but it was the responsibility of Government ministers, not the Reserve Bank.

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