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Labour’s modern approach to monetary policy

A commitment to full employment and a more transparent process to provide market certainty are the hallmarks of Labour’s proposals for a new approach to monetary policy, says Labour’s Finance spokesperson Grant Robertson.

“Since the Reserve Bank Act came into effect 28 years ago, there’s been massive change in the way the global economy operates. It is time to review our approach to monetary policy and ensure it is meeting New Zealand’s needs the 21st century.

“Labour is proposing more transparency to the decision-making process and governance of the Reserve Bank, and to broaden the scope of its focus to include both controlling inflation and achieving full employment

“We’re doing this because in the wake of the global financial crisis there has been a significant challenge to the effective operation of monetary policy, in particular in dealing with a low or no inflation environment.

“Labour is fully committed to low inflation and will seek to continue the Reserve Bank’s current inflation target of 1-3 per cent. We will add the goal of full employment to the Reserve Bank’s mandate. This would bring us into line with other countries such as Australia and the United States.

“The next Labour Government is determined to focus on creating more jobs and higher wages. It’s in Labour’s DNA to ensure New Zealanders have the best possible quality of life through the best employment opportunities.

“The other significant change will provide a more robust decision making process and more certainty for financial markets. Currently, the Reserve Bank Governor is the sole arbiter of the Official Cash Rate.

“Our policy introduces a more open and inclusive process, establishing a committee with some external members, and the committee’s minutes will be published so that the financial market can have a more sound understanding of the trends in the decision-making process. Australia and the United Kingdom are among the countries that have similar models to this.

“Upmost in our policy will be the enduring independence of the Reserve Bank. There will be no change in the current level of operational independence it has from the Government.

“After 28 years it is the right time to undertake a review to ensure the Reserve Bank and New Zealand’s monetary policy still provide the most efficient and effective model for New Zealand. Labour understands this and will introduce the reform that is needed,” says Grant Robertson.