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--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
     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
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMNRB$,M$A$$$,M$N$$$,MT$$$$,MGN$$$]

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