RBNZ Spencer: Dual Mandate Would Give MonPol More Flexibility

--Labor Market Pretty Balanced, No Impact Of Dual Mandate If Now

--Spencer Says NZD in Vicinity of Fair Value

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of New Zealand doesn't think the likely

inclusion of employment in the monetary policy mandate would have any impact on

its current policy stance but in future it would provide more  flexibility when

combined with the already flexible inflation-targeting regime, Governor Grant

Spencer said Thursday.

     Spencer was speaking at the media conference following the release of the

November official cash rate decision and quarterly Monetary Policy Statement,

with the RBNZ leaving the rate unchanged at 1.75%. Spencer is interim governor,

with this six-month term ending in March.

     "What I'd say, and this view is shared by my colleagues," Spencer said,

"any change in the mandate is unlikely to have any major impact on how we run

monetary policy."

     "Currently our approach is flexible inflation targeting," Spencer said.

This means inflation is the prime target but the RBNZ also looks at the real

economy, he said

     "Sometimes we are happy to see inflation moving outside the target band in

order to promote stability in output, employment, exchange rate," he added. With

the dual mandate, the policy approach would become more flexible, particularly

if the labor market is a long way from equilibrium, he said.

     "But in the current situation, the labor market is pretty balanced" and so

the dual mandate wouldn't make much difference to the current monetary policy

stance, he said.

     The new government is reviewing the RBNZ Act with the work led by Treasury

and supported by the RBNZ and an independent expert advisory panel. Among the

main changes being considered are inclusion of employment as a policy mandate

and moving to a committee model for monetary policy decision-making.

     New Zealand's equilibrium jobless rate, or non-accelerating inflation rate

of unemployment (NAIRU), is between 4% and 5%, Spencer said, but added that

NAIRU isn't fixed and changes over time. The RBNZ is currently doing more work

on NAIRU but is always cautious of the fact that the number is quite variable,

he added.

     On the exchange rate, Spencer said the RBNZ is happy to see the recent

depreciation that has taken place. At the current level, the New Zealand dollar

is "closer to a sustainable level" and in the "vicinity of fair value," he

added.

     The RBNZ's monetary policy stance is easy and is expected to remain so for

some time, he said.

     On the housing market, the RBNZ is projecting house price inflation to stay

low. The RBNZ is currently reviewing the loan-to-value restrictions on mortgages

and will announce more details in the Financial Stability Review Report on

November 29.

     Spencer hinted there could be some easing in LVR restrictions. However,

RBNZ would adopt a cautious approach and so any removal would be gradual, he

said.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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