Before governor designate Graeme Wheeler can be formally appointed governor of the Reserve Bank he and Finance Minister Bill English have to agree the terms of his job description, otherwise known as the policy targets agreement.

The PTA is intended to give some precision to the governor's statutory obligation to run monetary policy so as to deliver stability in the general level of prices.

Over the years how the PTA quantifies price stability and what caveats surround it have been tweaked.

But the governor's central obligation to preserve the domestic value of the New Zealand dollar remains the law of the land and a pillar of macro-economic stability.


Unfortunately, one thing that has changed during Wheeler's absence is the cross-party consensus that this is the appropriate framework for monetary policy has broken down.

That is despite a mountain of evidence that domestic monetary policy is merely one influence, and often not a very potent one, on the external value of the currency.

Fortunately, Wheeler will be negotiating with English who, since Alan Bollard announced he was not seeking a third term, has evinced a high level of comfort with the status quo.

English reiterated yesterday he did not envisage any major changes to the PTA.

"We are looking for continuity there," he said. "People have got to manage all sorts of risks and they don't need uncertainty about how the Reserve Bank is going to do its business."

Nevertheless the opportunity to renegotiate the PTA provided an opportunity to take account of the lessons of the global financial crisis and to ensure that it continued to reflect best international practice, he said.

In that context there are ongoing discussions about additional macro-prudential tools central banks might employ to pre-empt emerging asset price bubbles of the kind that have gone so messily pop in the United States, Spain and elsewhere.

Research at the Reserve Bank indicates that over the years the biggest driver of the exchange rate after export commodity prices, over which New Zealand has no control, has been house prices, over which domestic policymakers do have some influence.


If there are to be changes to a regime that has done its important - but limited - job well, that is where they should be.