The National Party will vote against the biggest change in the Reserve Bank Act in 30 years, citing issues with the policy’s dual inflation and employment mandate.
But the Reserve Bank of New Zealand (Monetary Policy) Amendment Bill will pass its first reading on Thursday night regardless of National's opposition, given all Government support parties will vote in favour of it.
The legislation will create an official decision-making committee within the Reserve Bank to decide on areas such as the movement of the Official Cash Rate (OCR).
It will also add employment into the central bank’s monetary policy mandate, alongside maintaining price stability.
This is the area National opposes.
The Party’s finance spokeswoman Amy Adams says the current inflation mandate already factors in several other economic considerations.
“We think that is the right setting – there has been no case made as to why there is a need for a dual mandate.”
She says the Government has yet to provide an explanation as to how the dual mandate would work in situations where employment and inflation are pulling in different directions.
Speaking at Parliament’s Question Time on Thursday, Finance Minister Grant Robertson defended the Government’s policy.
He says having employment in the Reserve Bank’s mandate will help the Reserve Bank look after how the “real economy is operating.”
“Many other countries in the world use it and, in fact, those countries that have a dual mandate, with both inflation and employment, tend to keep inflation under control better than those with a single mandate.”
Central banks with a dual employment and inflation mandate include the US Federal Reserve and the Reserve Bank of Australia.
Speaking to media before Question Time, Robertson said he’s hopeful National – when it’s had the time to digest the Bill in the Select Committee stage – will support it when it comes back to the House.
But Adams says unless the dual mandate clause is changed, National will not be voting in favour of the Bill in its second and third reading.
Also supporting the Bill on Thursday is New Zealand First. In opposition its leader Winston Peters submitted and championed a Member’s Bill to change the Reserve Bank’s objectives to include “critical macroeconomic factors,” such as the rate of growth and the value of the dollar.
Speaking at his Post-Cabinet Press Conference on Monday, Peters described the current Reserve Bank Bill as “a very happy compromise.”
“At least it is a start in the right direction.”
He would not be drawn on specifics.