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Government Renews RBNZ Focus On Inflation

With Parliament now having passed the Reserve Bank of New Zealand (Economic Objective) Amendment Bill, the coalition Government has met its 100-Day commitment to return the Reserve Bank to a single focus on inflation, Finance Minister Nicola Willis says.

“Inflation has been out of the Reserve Bank’s target range for two-and-a-half years and New Zealanders are doing it tough. In order to address the cost-of-living crisis, the Government is taking a number of early steps to support the Reserve Bank in its fight to beat inflation.

“Today we have delivered on one of those early commitments by passing legislation to return the Reserve Bank to a single focus on price stability – a key part of the National-ACT coalition agreement.

“For nearly 30 years, the Reserve Bank’s sole objective for monetary policy was price stability. The introduction of that policy regime was a tremendous success – supporting the end of the high and volatile inflation that had previously plagued New Zealand for decades.

“In 2018, the Labour government amended the Reserve Bank’s governing legislation to introduce a new secondary objective of achieving maximum sustainable employment, sitting alongside the prior focus on inflation.

“This change was a mistake. With no hierarchy of objectives, the introduction of a dual mandate heightened the risk of a future policy error – with monetary policy led in multiple directions, even as inflation embedded itself in the economy.

“Over time, a single focus on price stability is the best way to achieve strong, consistent growth in employment.

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“Risking higher inflation in the pursuit of unsustainably high employment, just creates the conditions for a more severe hike in interest rates later on to bring inflation back under control. The result – as New Zealanders are experiencing today – is high inflation, high interest rates, and the prospect of rising unemployment.

“I want to thank the Reserve Bank for its support while the Government makes this change to legislation. Accompanying this change to the Reserve Bank Act will be an updated Remit and Charter for the Monetary Policy Committee, reflecting the renewed focus on price stability.

“Beating inflation is this Government’s top priority – and today’s announcement is just one part of that agenda. Constraining growth in government spending, reducing costs on business, and unshackling the economy from regulation will all play a role in reducing inflationary pressure in the economy.”

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