An economist says the Reserve Bank could successfully bring back its dual mandate of low inflation and full employment.
Countries around the world, including the United States and Australia, had implemented dual mandates, independent economist Cameron Bagrie said.
“Sometimes, in certain situations, the two can cause a few frictions, but by and large, the two are achievable.”
His comments come after New Zealand First leader Winston Peters signalled he could resurrect the dual mandate, which was scrapped by the coalition government early in its current term.
It also came as the unemployment rate stood at 5.3 percent, with forecasts suggesting it could nudge higher when Stats NZ released its data next week.
Critics have argued that having an employment mandate sitting alongside inflation targeting could take the focus away from the latter.
“First and foremost, any central bank, when it comes to targeting inflation or full employment, their main priority is going to be inflation,” Bagrie said.
“Realistically, it wouldn’t make any material difference in regard to how the Reserve Bank would go about their everyday job.”
Assuming New Zealand moved back to the settings that were in place under the previous Labour government, Bagrie said he did not think there would be too many problems.
Parliament passed a bill to remove the Reserve Bank’s mandate to consider employment levels in monetary policy decisions in December 2023, shortly after the formation of the current National-led coalition.
It was the first piece of legislation passed by the Government.
Prior to the bill becoming law, Finance Minister Nicola Willis said it gave the Reserve Bank “absolute clarity about its role in our economy”.
“It needs to focus on the principal objective of price stability,” she said.
Earlier this week, Peters described the removal of the employment mandate as a “dead rat” his party had to accept at the time.