WELLINGTON/HONG KONG: New Zealand’s decision to change its central bank’s inflation-targeting mandate, which has served as a model for the rest of the world, partly reflects a global shift on the role of monetary policy since the 2008-09 financial crisis, according to Finance Minister Grant Robertson.
With growth in consumer prices and wages stubbornly low, central banks are under increasing pressure globally to take on responsibilities beyond inflation targeting.
To that end, the new Labour-led coalition government plans to add employment to the Reserve Bank of New Zealand’s mandate.
“Monetary policy and the work of central banks has come under huge pressure since the global financial crisis and the levers and tools” available to them “have proved challenged,” Robertson said in an interview on November 10.
“What’s happened globally has been one of the things that’s driven that.”
New Zealand is poised to become the third central bank member of the Bank for International Settlements (BIS) to change its official mandate after the crisis in relation to employment.
Argentina added a reference to employment among other adjustments in 2012 and Israel made employment a secondary goal while adding a mention of social inequality in 2010. The new mandate in New Zealand is expected to come into force in the first half of 2018.
In 1989, New Zealand’s central bank was the first in the world to adopt a defined inflation target, a move that was soon followed by Canada, Britain and dozens of other developed and emerging economies.
Now, the trend seems to be towards broader goals amid growing public pressure.
“I think lots of people globally” are “asking about what central banks have been doing,” the Reserve Bank of New Zealand’s assistant governor, John McDermott, said. “That’s a global zeitgeist.”
In Iceland, a government committee is looking into whether the central bank should exert more control over a surging currency. In the United States, the Fed Up advocacy group that calls for loose monetary policy has gained access to global gatherings of central bankers. In more extreme cases, anti-austerity protesters have clashed with police outside the European Central Bank’s headquarters.
Having drawn fire from many politicians and economists for not foreseeing the financial crisis, central bankers around the world are being pressed to explain why they are fixated on inflation when critics say policies like low interest rates and money printing are fuelling inequality and creating asset bubbles.
— Reuters
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