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The BulletinOctober 30, 2023

How much should the Reserve Bank care about jobs?

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As the RBNZ awaits labour market figures that will decide its next OCR move, the new government is rethinking employment’s role in New Zealand’s monetary policy, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.

All hold for the latest labour market news

After the Reserve Bank chose to keep interest rates steady at its last review, all economic signs currently point to more of the same next time. One thing that could change its mind on keeping them on hold? A “nasty surprise” in Wednesday’s labour market figures, says David Chaplin on Interest.co.nz. RBNZ is forecasting a slight rise in unemployment to 3.8% from its current level of 3.6%, and annual growth in hourly private sector wages of 7.1%, from 7.7% last quarter – a “nasty surprise” in this context would be the unemployment figure actually going down and hourly wages actually going up. As long as the Stats NZ figures show a significant weakening in the labour market, “the chances remain fairly good that we have seen the last of the OCR hikes, and therefore next year will become a story of when we can expect to see interest rates come down”, Chaplin writes. The next OCR review is on November 29.

Seymour calls for an end to RBNZ’s employment target – and a lot more

The figures will land amid a debate over the role of the RBNZ prompted by Act leader David Seymour’s call for sweeping changes to the central bank with the aim of making it more accountable to the government. Seymour told Jenée Tibshraeny (paywalled) he wants to do this by severely curtailing the bank’s powers – specifically by axing the Monetary Policy Committee (MPC), lowering the RBNZ’s inflation target and reducing the flexibility it has around how quickly it meets this target. While both Act and National have said they want to scrap the RBNZ’s employment target, Seymour’s plan is a lot more extreme than his coalition partner’s. In the Herald on Sunday (paywalled), Liam Dann wrote that such a laser-sharp focus on cutting inflation at any price would be a mistake. “Inflation is bad and we need to get it back under control. But we shouldn’t forget that high unemployment is often worse.”

How much does the dual mandate really matter?

Scrapping the Reserve Bank’s “dual mandate” to address both inflation and employment is a key plank of National’s 100 day action plan, suggesting the party believes the “maximum sustainable employment” objective has significantly detracted from its focus on keeping the lid on inflation. Writing in BusinessDesk (paywalled) a few days after the election, David Chaplin questioned that assumption, arguing that the additional requirement “doesn’t seem to have made much difference, aside from some extra comms work” and so scrapping it wouldn’t be a game-changer – “or at least one worth pursuing for the 100-day march”. Tibshraeny notes that Winston Peters may also have a bone to pick with the policy, having been part of the government that introduced the dual mandate back in 2019. He’s been an enthusiastic supporter of expanding the RBNZ’s focus since at least 2012, when he introduced a members’ bill “aimed at requiring the bank to also consider economic growth, export growth, the value of the dollar, and employment”.

Challenges ahead for National’s 100-day plan

What to do with the Reserve Bank is just one of the headaches for National as they gear up to deliver on their 100-day plan. The first challenge? Getting all the new laws written, says Vernon Small (the Sunday Star-Times, paywalled), who observes that “accurate law drafting can take immense amounts of time and there is limited capacity in the Parliamentary Counsel Office that does it.” For the public service, which is key to providing policy advice and support to new ministers, it’ll be an especially stressful time as they try to find “huge cost savings while facing thousands of job cuts – job cuts ordered by the very ministers asking for the urgent work”. Small thinks the reinstatement of the Resource Management Act will be relatively simple – other promises, like the justice law reforms, will be far harder to get done in the 100-day timeframe.

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