New Reserve Bank (RBNZ) Governor Anna Breman wants to see the RBNZ revert to having eight Official Cash Rate reviews every year rather than the seven it has now.
"I think having seven meetings - we really have to consider moving to eight meetings per year," she said in an interview on RNZ.
"I understand there are reasons why we can't change it very quickly, but I definitely want to have that discussion with my colleagues at the Monetary Policy Committee," Breman said.
A quick comment at this point from the author of this article: The RBNZ in fact used to have eight OCR reviews every year, but reduced the frequency about 10 years ago. This was something I complained about then and have continued to do so. In that article 10 years ago, I remarked that "the real killer for me is the fact that there will now be a glaring three month gap between the last Official Cash Rate decision made in one year and the first in the next".
And, sure enough, this long, nearly three month gap, over summer between OCR meetings has become increasingly contentious because of how much things can change in that time.
And it has required the RBNZ to break its summer silence on occasions.
Breman this week took the most unusual step of issuing a media statement effectively aimed at easing the tighter conditions that had taken hold in financial markets since the last OCR review for the year on November 26, which Breman didn't take part in. While that last review for the year saw the OCR cut again from 2.50% to 2.25% the messaging that accompanied it suggested that the RBNZ was done with cutting rates.
Subsequently there was a sharp rise in wholesale interest rates and some rises in mortgage and deposit rates.
Breman takes part in her first OCR decision on February 18, and clearly decided that was too long to wait to speak to the markets and take the sting out of the rising wholesale rates - which her statement has partially done. Breman has also this week given three media interviews, including the one with RNZ.
Early this year the Government urged the RBNZ to have more OCR meetings. The RBNZ looked at the issue and when setting the next set of OCR reviews - extending into 2027 - it did narrow the gap a little between the last OCR review of one year and the first review of the next. But it still kept just seven reviews a year.
Breman, who started her role at the RBNZ on December 1 told RNZ she would not hesitate to make a statement again. She said transparency was important.
"Given I am new in my role, if I comment on monetary policy, I do want everyone to have that information at the same time," she said.
"I think that what we're seeing now is that New Zealand has had several years with weak growth, a weak labour market, and we're starting to see the economy recovering.
"And from my perspective, given that we see inflation also falling and being low and stable going forward, it's very important now that we see growth that's lasting, that we see that we have a period where growth is coming back. We see stronger labour markets while of course keeping inflation low and stable. So it's very important and that's also why I wanted to stress [in her statement this week] that the cut that the Reserve Bank did in late November that was really to support economic growth going forward."
In an earlier interview with 1News, Breman had said of the rising interest rates in wholesale markets that "if we see a lot of tightening, we have to be very vigilant because we don't want that tightening to reduce the growth that we're starting to see happening right now".
“If the banks hike mortgages and that reduces growth, we have to take that into consideration.”
Asked what her consideration was, she said: “My consideration is that it's a risk that it dampens the growth that we're starting to see."
18 Comments
Again proof that we have an unofficial dual mandate: "it's very important now that we see growth that's lasting, that we see that we have a period where growth is coming back"
Why is growth important if your only mandate is inflation? The RBNZ should care as much about economic growth as the ministry of justice does.
Growth and jobs are basivcally inputs into their number crunching machine and not separate goals. Ignoring growth would likely make inflation control even worse...
Growth will increase inflation. Funny thing to hope for when CPI is already over your target.
Yeh but only when growth gets ahead of what the economy can actually handle. If theres spare capacity or productivity improves, growth doesnt automatically mean higher inflation, overheating does like 2020/21. They watch growth to see where the inflation might go, not because growth itself is the goal...
The (macro) growth they speak of is money supply....aka inflation.
Yeh nah not really. Growth usually means real stuff, output, jobs, incomes etc... Sure moola supply is a factor but doesnt automatically mean inflation unless demand steams ahaed of what the economy can handle. As we all know we've had plenty of inflation lately without any real strong growth.
Ask yourself why 'inflation' is targeted at all and why the target is always a positive number.
Remember central banks are charged with running 'monetary policy'...not output or prices.
Umm ok...I just asked myself and this is how I see it = a small bit of inflation helps things ticking along. If prices are flat or falling, people tend to sit on their hands and stop spending and\or investing. But that doesnt mean growth is just money printer go brrrr or that inflation always comes from growth. You can get inflation from higher costs and supply issues even when the economys pretty shite, which is basically what we've all just lived through.
Supply shocks can cause prices to increase but that does not enable widespread prices to remain elevated.....for that to continue the supply of 'money' must increase to enable those higher prices to be paid (and return to be paid) in aggregate.
Yeah partly true, but its not that clean in the real world. Prices can stay high without fresh moola flooding in if costs stay elevated and people are forced to keep paying them ie/ rent, food, insurance, energy, rates etc... That just squeezes everything else. We've seen that play out with prices sticking around while real spending and growth are weak.
Sure money growth matters but inflation isnt just about money printing, its also about costs, supply limits, and where spending gets cut back.
You are describing reduced demand due to the inability to meet the elevated prices. Why is that demand reduced do you think?...perhaps because the wider public have reduced access to 'money'.
Yeh Im saying people have less usable money, just not because the money supply shrank but because the basicss are taking a bigger cut of their income.
Who controls (or think they do) the money supply?
That is the problem...deciding who has access to the money supply....and consequently what that money is used for.
But as said originally, when they speak of growth it is not growth of output or even consumption that they speak...it is growth of 'money'....where that money is used is not their concern.
Hmmmm I think we’re talking past each other a bit now. When they talk about growth here, they're meaning real stuff like jobs, output and incomes, not just money supply. Yep money matters but its not the end goal. Demands been weak because living costs are chewing into peoples pay and not just because of money decisions. And who controls money is a much bigger debate than what this data is all about...
Umm ok...I just asked myself and this is how I see it = a small bit of inflation helps things ticking along.
Inflation is the debasing of the value of a currency. This is a built-in feature of the fiat system which benefits banks, not the people who use them. Inflation eats away at people's purchasing power, and since the removal of the gold standard, has been utilised by governments to excuse spending at times, noting they can inflate the debt away. Why not have a system with 0 inflation? What would be the downside?
The downside to zero is that it tends to have people to sit on their cash and stop spending, which simply just slows the economy and makes recessions harder to grovel out of. Also makes debts harder to pay off and increases the risk of the ole deflation spiral. So a small stable inflation rate isnt about helping banks, more about keeping spending, wages and investments moving along without boom\bust type of carry on.
That doesnt mean inflation is great but a bit of it is normally better than having none or dealing with deflation, hence why the rb wants 1-3%
Probably because they want to raise rates in smaller, less noticeable increments rather than larger, more spaced out hikes.
Next year Stats will start reporting CPI monthly, most likely. After that they will also start working on other measures (employment probably) being reported more frequently too. So it would seem to me going to more frequent reviews, given the recent shit shows somewhat caused by long periods between reviews, makes sense.
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