MNI: Loosened MPC Rules Seen Spurring RBNZ Policy Debate

A move to allow more active economists to join the Reserve Bank of New Zealand’s Monetary Policy Committee will help spur debate and could lead to more use of the body’s voting function when setting the Official Cash Rate, ex-staffers told MNI.

The Treasury will replace two MPC members over the coming year, with the second and final two-year terms for both Peter Harris and Caroline Saunders expiring in 2024. In 2019, candidates engaged, or likely to engage, in active research in monetary policy or macroeconomics were excluded, but following publication of updated MPC recruitment criteria last week, Treasurer Grant Robertson told local media the Treasury had used “over-zealous language” and had aimed to filter potential members who could struggle to balance confidentiality with academic freedom.

Michael Reddell, independent economic commentator and former special adviser, economics, at the RBNZ, said the change would pull the committee in line with international peers and attract a wider range of mid-career experts "pushing the bounds of macroeconomic thinking." However, he called for further reforms to boost transparency and accountability, pointing to the 50-day-a-year commitment that would deter some candidates.

“There's a number of areas that need a shake up – there is no accountability, no speeches, or interviews and members are not free to record their views and they are not expected to speak openly or be accountable,” Reddell continued. A model closer to the British or Swedish committees would attract intellectually energetic and curious candidates with diverse opinions, he said.

“The consensus model for the last 40 years has always been designed to look like change without being real change,” he commented.

FURTHER REFORM

MNI reported in May that the RBNZ could face further reform to the makeup of the MPC and its dual mandate should the opposition National Party win the upcoming October election (See MNI: RBNZ Faces Post-Election Shakeup - Ex-Staffers). Dissatisfaction with the RBNZ – focused on its performance during the pandemic – has grown among economists, business and sections of the public aimed at the Reserve’s structure and the makeup of the MPC.

Reddell added the opposition parties would likely sharpen the RBNZ's inflation targeting and take out references to employment added into the Reserve's mandate in 2018 if they win government.

The government conducted a review of the RBNZ and monetary policy in 2017 and has implemented legislative changes since. A monetary policy reform, establishing the MPC, was enacted in 2018 via the Reserve Bank of New Zealand (Monetary Policy) Amendment Act.

Opposition parties would also seek to remove, curtail or make life difficult for RBNZ Governor Adrian Orr by reforming the MPC and making it more transparent, Reddell added.

Suzanne Snively, former RBNZ board member between 1985-1992 and a chair of the independent experts advisory panel that led 2017's RBNZ Act review, said loosening MPC restrictions now that the government and Reserve have grown accustomed to its committee approach to monetary policy decision making made sense. She said the MPC’s recent use of the voting mechanism showed diversity of opinion and the committee worked as intended.

The MPC's last decision in May, which lifted the OCR to 5.5%, came after a 5-2 vote, the first time it had been used. Orr said the Committee was in “broad agreement” on the monetary policy outlook, just not on the OCR itself. (See MNI RBNZ WATCH: Lower GDP Surprise, Higher OCR Working)

Snively said diversity from informed perspectives drove the best outcomes and this had been debated intensively during the review. Rapid advancement in technology and the economy meant MPC members would have to rely on their own expert judgement occasionally, she said, noting that the Bank of England model, which publishes different perspectives of its committee members, was preferable, but the New Zealand public may not be ready for the increased debate.

Snively pushed back against the idea of another RBNZ Act review should opposition parties win government, noting the previous review was thorough and other issues should take priority for a government genuinely concerned with monetary and macro-economic policy.

.