New Zealand's Labour Party is "seriously considering" reintroducing a dual monetary policy mandate for the Reserve Bank of New Zealand (RBNZ), which would require the central bank to target both inflation and maximum sustainable employment. This position was articulated by Labour's finance spokesperson, Barbara Edmonds, who noted that the previous Labour-NZ First government implemented this dual mandate in 2018, only for it to be removed by the current Coalition Government in 2023. Edmonds argues there were "very strong reasons" to have the employment mandate, citing the current unemployment rate of 5.4% and 165,000 people seeking work as problematic for struggling Kiwis.
The current government and opposition parties have criticized Labour's potential move. Finance Minister Nicola Willis called the idea "alarming," suggesting it would lead to higher inflation, which she described as the primary driver of the cost of living. Willis stated that a single focus on price stability is the best way to achieve economic growth and job creation. However, Edmonds countered that the current government's stance implies a tolerance for higher unemployment if it means the RBNZ cannot drop interest rates faster.
The debate over the RBNZ's mandate comes at a time when annual inflation hit 3.1% in the December quarter, slightly above the RBNZ's target range of 1% to 3%, and unemployment reached a 10-year high of 5.4% in the same period. While the RBNZ's chief economist, Paul Conway, acknowledged that the bank still considers the labor market due to its impact on inflation, he expressed concern about frequent changes to the mandate, calling it "a little bit destabilizing." New Zealand First leader Winston Peters has also indicated his desire to restore the employment mandate.
Economists have varied views on the potential impact. Independent economist Cameron Bagrie suggested that a dual mandate is achievable, citing other countries like the US and Australia that employ similar frameworks. He noted that while there can be frictions, a central bank's main priority would still be inflation. However, Citi's senior economist Faraz Syed noted that with a dual mandate, it would be difficult for the RBNZ to justify hiking rates given the current softening labor market. The RBNZ currently has a primary objective of maintaining inflation between 1% and 3%, specifically targeting 2%.
Labour's argument is that the removal of the dual mandate was politically motivated and not in the best interest of New Zealanders, especially given the current unemployment figures. Edmonds highlights that many other comparable countries operate with a dual mandate. The discussion underscores a fundamental difference in economic philosophy between the current government, which prioritizes inflation control, and the Labour opposition, which seeks a broader consideration of employment alongside price stability.
