RBNZ Could Be Stacked Like U.S. Supreme Court, Opposition Warns

(Bloomberg) -- New Zealand’s opposition party has voiced “serious concerns” about government reforms of the central bank, saying they could undermine its independence and turn it into a political tool.

“I would hate to see the Reserve Bank becoming a little bit like the U.S. Supreme Court, where it’s all about stacking it with your people,” National Party finance spokeswoman Amy Adams said in an interview Thursday in Wellington. “It’s too important for that.”

The government’s sweeping reforms of the RBNZ will result in Finance Minister Grant Robertson appointing all members of a new Monetary Policy Committee and directing it on its objectives via a remit. A non-voting Treasury Department official will also join the MPC to advise it on government policy -- a relatively unusual practice among central banking peers internationally.

Robertson has said the reforms are necessary to modernize the central bank, which pioneered inflation targeting three decades ago, and ensure that monetary policy plays its part “in the overall economic goals of this government.” He has always maintained that the RBNZ’s independence won’t be compromised.

Still, the Treasury’s role on the policy committee was opposed by both the RBNZ and an independent panel advising Robertson on the reforms. The panel said having Treasury in the room for interest-rate decisions won’t increase the coordination of monetary and fiscal policy.

Treasury Secretary Gabriel Makhlouf will take the observer role and start attending RBNZ policy meetings from the end of this month.

“Treasury have wanted more control over the Reserve Bank since Adam played fullback for the apostles,” Adams said. “It also suits the government’s agenda. It’s in the government’s interest to be able to much more strongly dictate to the Reserve Bank what they should say about government policy and its effect on the economy.”

She said Treasury would effectively be “pushing the government line” in a room of policy makers appointed by the minister who “could be inclined to want to do the minister’s bidding.”

“That is an incredible weakening of the Reserve Bank’s independent and autonomous assessment” of government policy, Adams said.

Dual Mandate

The legislation to reform the RBNZ is currently going through parliament and is expected to pass into law by April next year. National isn’t opposed to everything in the bill and sees merit in the creation of a new MPC, but has problems with its proposed structure and appointment process, Adams said.

The RBNZ has already adopted a dual mandate ahead of one being entrenched in the new law, and is now required to support maximum sustainable employment in addition to maintaining price stability.

Adams said National has concerns about the dual mandate because the minister will have the power to dictate which goal the RBNZ prioritizes, which could result in monetary policy being looser than it should be.

Asked if National would repeal the changes if it is returned to government, Adams said: “We have significant concerns about them, and while we’re not prepared to make definitive statements about what our plans are, anything that’s passed without bipartisan support has to have questions raised as to its enduring nature.”

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