New Zealand's Labour Party is exploring the reintroduction of a dual mandate for the Reserve Bank of New Zealand (RBNZ), which would compel the central bank to consider both inflation and maximum sustainable employment when setting monetary policy. Labour's finance spokesperson, Barbara Edmonds, stated she is "seriously considering" this move, arguing that the previous Labour-NZ First government implemented the dual mandate in 2018 for valid reasons related to the impact on people and employment. This policy was subsequently removed by the current National-led coalition government in 2023, fulfilling a campaign promise. Edmonds believes the removal was politically motivated and not in the best interest of New Zealanders, particularly given the current unemployment rate.
The proposal has drawn strong criticism from the current government. Finance Minister Nicola Willis called the idea "alarming," asserting that Labour's plan would lead to higher inflation, which she described as the primary driver of the cost of living crisis. Willis emphasized that a clear, inflation-busting target is essential for stable inflation, which in turn supports job creation. ACT Leader David Seymour echoed these concerns, labeling Labour's economic approach as a "recipe for rent hikes and a debt crisis."
Currently, the RBNZ's sole mandate is to maintain inflation between 1% and 3%, with a specific target of 2%. The latest annual inflation rate was 3.1% in the December quarter. The unemployment rate rose to a 10-year high of 5.4% in the December quarter. While some economists see early signs of improvement in labor market data, the RBNZ is projecting unemployment to remain around 5.4% for at least a year. RBNZ officials have acknowledged that frequent changes to the mandate can be destabilizing for monetary policy, though Assistant Governor Karen Silk noted that the central bank still considers the labor market due to its impact on inflation.
Labour argues that a dual mandate provides an additional tool for the Monetary Policy Committee and would prevent tolerating higher unemployment when there's a chance for interest rates to drop faster. They highlight that many other countries operate with a dual mandate. However, the current government maintains that a single focus on price stability is the most effective way to achieve economic growth and job creation, arguing that the dual mandate experiment contributed to New Zealand's recent high inflation.
