Robertson satisfied with flexibility of RBNZ's dual mandate

Finance Minister Grant Robertson wants the RBNZ to have flexibility when considering how much weight to put on its inflation and employment targets. Photo / Marty Melville

Finance Minister Grant Robertson is "satisfied" with the way the Reserve Bank of New Zealand (RBNZ) has leeway to decide how much emphasis it puts on its two targets when it sets monetary policy.

In 2018, Robertson started requiring the Monetary Policy Committee to target "maximum sustainable employment", as well as annual consumer inflation of between 1 and 3 per cent.

The RBNZ is considering whether the committee should be given guidance on how much weight to put on each of these targets, particularly when they conflict with each other.

It's asking the public for its view on the matter via a five-yearly review of its monetary policy remit.

Asked by the Herald whether he believes the RBNZ needs guidance on how to weigh the targets, Robertson said: "I'm satisfied with where we are now.

"I think it's important the Bank is given flexibility in the way in which it balances those two objectives."

Robertson said the particular focus the RBNZ currently has on price stability is understandable given it believes employment is beyond sustainable levels.

Robertson will have the final say on whether or not the remit is changed in 2023 for the following five years. The public consultation underway will inform the advice the RBNZ gives Robertson on the matter.

The RBNZ, in a consultation document released on Wednesday, said that, in the long run, "returning inflation to target is consistent with the economy and employment operating at their maximum sustainable levels".

But it noted there could be instances in the short to medium term where trade-offs need to be made between the two objectives.

For example, if the RBNZ hiked interest rates at a time oil prices were causing too much inflation, but the economy was struggling, it could curb inflation but create too much unemployment.

The RBNZ said that while a more prescriptive remit might help make the Monetary Policy Committee more accountable for its actions, it could also have unintended consequences.

The RBNZ recognised it is "difficult to codify in advance how monetary policy should respond to all economic circumstances".

If the National Party had its way, it would remove the employment target altogether. However, doing so isn't an option under the remit review.

Another issue the RBNZ is asking the public for its view on is the suitability of the definition of the inflation target, which is to keep future annual inflation between 1 and 3 per cent over the medium term, with a focus on keeping future inflation near the 2 per cent midpoint.

Robertson didn't share a view on whether he wanted this wording changed.

"I'm very interested in what people have to say about that," he said, clarifying he supports inflation targeting in general.

Asked whether tweaking the target at a time inflation is sky-high would risk undermining the RBNZ's credibility, Robertson said: "We need to do a review of the remit. I wouldn't jump to any conclusions about the outcomes of that review."