REPEAT:MNI: RBNZ: New Mandate Reinforces Inflation Flexibility

Repeats Story Initially Transmitted at 23:34 GMT Apr 11/19:34 EST Apr 11

By Sophia Rodrigues

     SYDNEY (MNI) - The inclusion of maximum sustainable employment without a

specific numerical target in the Reserve Bank of New Zealand's mandate

reinforces the already flexible inflation targeting approach, Assistant Governor

John McDermott said Thursday.

     McDermott made the comments in a speech to the Reserve Bank of Australia

conference on central bank frameworks in Sydney. The speech was titled

"Inflation Targeting in New Zealand: an experience in evolution" and follows the

recent signing of policy targets agreement between new Governor Adrian Orr and

Finance Minister Grant Robertson which included maximum sustainable employment

as an additional consideration in the conduct of monetary policy.

     According to McDermott, it is helpful not to have a numerical target for

the full employment objective as it is with price stability. This is because

"maximum sustainable employment" cannot be fully captured by a single indicator.

     The PTA doesn't provide a numerical target but the exact wording of the

full employment objective in the Act is yet to be determined.

     McDermott said a numerical target for inflation along with a "qualitative"

approach for employment is consistent with the practice in Australia, and in the

U.S.

     The new mandate reinforces the flexibility of inflation targeting as the

RBNZ has long had regard to the real economy, including employment, but it is

still too early to determine the effect of these changes on the conduct and

communication of monetary policy, he said.

     What will change is that the RBNZ will communicate its assessment of and

outlook of the labor market in more detail than in the past, McDermott said.

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