© Reuters. FILE PHOTO: Two people walk towards the entrance of the Reserve Bank of New Zealand located in the New Zealand capital city of Wellington, March 22, 2016. REUTERS/Rebecca Howard/File Photo
WELLINGTON (Reuters) – New Zealand on Wednesday passed legislation returning the central bank’s mandate to a sole focus on inflation, removing the need to take employment into account when making monetary policy decisions.
The New Zealand government, which was sworn in earlier this month, campaigned on bringing inflation down and said key to this was making a change to the legislation that governs the priorities of the Reserve Bank of New Zealand.
In 2018, the central bank was tasked with a dual mandate of targeting low inflation and full employment, but it now reverts back to a focus on just low inflation under the newly passed RBNZ (Economic Objective) Amendment Bill.
“Over time, a single focus on price stability is the best way to achieve strong, consistent growth in employment,” New Zealand’s Finance Minister Nicola Willis after the passage of the bill.
The bill must now receive royal assent from the country’s governor general, which generally happens within seven days of parliament passing it and is just a formality and will then immediately come into effect.
This means it will be in place when the Monetary Policy Committee next meets in February for its cash rate decision.
The change to the mandate is seen by markets as hawkish at the margins but unlikely to drastically impact monetary policy decisions in the short term.
