The external appointment of Swedish central banker Anna Breman has taken some of the political heat out of local monetary policy debate.<\/p>\n
Breman has thus far proved a clear communicator and seems popular with the financial sector and economic community.<\/p>\n
Monetary Policy Committee meetings have been opened to more public scrutiny, with voting decisions published to give the public insight into how united, or otherwise, committee members are.<\/p>\n
Breman has expressed an intent to stay focused on the single mandate of inflation and the target of 1-3%.<\/p>\n
There\u2019s one significant fishhook in all of this, of course. The inflation rate is currently sitting outside that official target band. <\/p>\n
At an annual rate of 4.1%, it continues to run too hot.<\/p>\n
After a dramatic post-Covid spike above 7%, the annual inflation rate dropped as low as 2.2% in the December 2024 quarter.<\/p>\n
But from there, inflation has risen steadily, pushed up by a combination of high local energy prices and the big global oil price rise.<\/p>\n
Perhaps unsurprisingly, the squeeze that higher costs are putting on firms is recorded as one of the most pressing issues in the Mood of the Board survey this year.<\/p>\n
However, business leaders were realistic about how much control local policymakers have over what is mostly imported inflation.<\/p>\n
\u201cInflationary costs are due to the fuel crisis, tough one to solve given it is caused by an external event,\u201d said one business leader.<\/p>\n
\u201cThe New Zealand economy is okay, but the global economy does concern me. We have a couple of never-ending wars upending oil supply chains,\u201d wrote another.<\/p>\n
However, others were concerned that central banks and governments had not been as focused on inflation as they should have been in the past few years.<\/p>\n
\u201cCentral banks around the globe have not had inflation aligned with targets for too many years,\u201d one respondent said.<\/p>\n
Fiscal discipline was also required, said another: \u201cBalance the budget to lower inflation\u201d.<\/p>\n
By the numbers, 76% of business leaders said they thought the RBNZ\u2019s latest rate hike (taking the OCR to 2.75%) was the right call.<\/p>\n
Just 11% said it should have held (13% were unsure).<\/p>\n
Business leaders were almost as strongly supportive of keeping the mandate focused squarely on inflation.<\/p>\n
They were asked: should the Reserve Bank\u2019s monetary policy settings be solely focused on meeting its inflation target?<\/p>\n
Just 22% said no, 9% were unsure, but 69% want it left as the sole target.<\/p>\n
\u201cThe Reserve Bank should have one clear job: keep inflation under control and maintain price stability,\u201d said one respondent.<\/p>\n
Trying to use interest rates to manage employment, house prices or other aspects of the economy was a distraction, they said.<\/p>\n
The strength of support for the single mandate reflects the fact that the world generally seems to have re-entered an inflationary period.<\/p>\n
In the decade before Covid, global inflation was so low that some economists believed it may have been eradicated as a problem.<\/p>\n
Instead, central banks were forced to grapple with deflationary problems.<\/p>\n
Some, including the RBNZ, looked at the plausibility of cutting interest rates into negative territory.<\/p>\n
Back in 2016, nearly 50% of Mood of the Boardroom respondents believed the Government should rewrite its agreement with the Reserve Bank to give the Governor the ability to consider wider economic factors beyond inflation.<\/p>\n
One leading banker, in the comments that year, argued that the single-mandate Reserve Bank Act was right for the 1980s and 1990s, when inflation was the problem \u2013 in a post-global financial crisis, low-inflation world, the Governor needed to focus on different things.<\/p>\n
Of course, just two years later, those supporting a dual mandate got their wish as the incoming Labour-led Coalition changed the policy.<\/p>\n
In hindsight, the timing probably couldn\u2019t have been worse. Covid threw the world\u2019s supply chains into disarray.<\/p>\n
Governments and central banks pumped money into lockdown economies.<\/p>\n
The result was an inflation spike that rivalled the oil shocks of the 1970s.<\/p>\n
Whether a single mandate would have made a difference to how the Reserve Bank played its hand in the dual mandate era, we\u2019ll never know.<\/p>\n
But with inflation still running hot six years after the first Covid shock, it is clear that business leaders are not keen to repeat the experiment.<\/p>\n
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.<\/p>\n