the first of governor Anna Breman\u2019s reign<\/a> \u2013 was to hold the official cash rate (OCR) at 2.25%.<\/p>\n![\"\"](\"data:image\/gif;base64,R0lGODlhAQABAIAAAAAAAP\/\/\/yH5BAEAAAAALAAAAAABAAEAAAIBRAA7\")
A recent uptick in inflation has some people feeling nervous. Graph: Stats NZ<\/p>\n
After years of struggle, the New Zealand economy is finally starting to see some green shoots of growth, but if inflation goes any higher then the bank will be forced to increase the OCR. Interest rates will go up, spending will reduce, and we could go back into a recession.\u00a0<\/p>\n
The war in Iran makes higher inflation highly likely. Cost pressures in oil and supply chain disruption will increase the costs of petrol and many consumer goods. That will be counted in the consumer price index (CPI) as an increase in inflation but it will have nothing to do with the domestic economy.\u00a0<\/p>\n
In response, the Reserve Bank will be expected to raise the OCR to bring down inflation. But that will just punish a struggling New Zealand economy without doing anything to address the issue. Higher interest rates will drive down local consumer and business spending.\u00a0<\/p>\n
A higher OCR will help somewhat with internationally-driven inflation because it tends to raise the value of the New Zealand dollar, making imports cheaper. But it will come at the expense of exporters \u2013 especially farmers \u2013 and won\u2019t do anything to change the amount of oil being shipped around the world. Petrol will still be expensive, and the country is more likely to be in recession.\u00a0<\/p>\n
A Reserve Bank spokesperson told The Spinoff they couldn\u2019t comment on what the bank might do in a hypothetical future scenario but said they were \u201cclosely monitoring and assessing the situation in the Middle East\u201d.<\/p>\n
It would arguably be better to allow some higher medium-term inflation than manufacture another recession, but the Reserve Bank can\u2019t do that. The lack of flexibility in its mandates could cause it to make a non-optimal decision.\u00a0<\/p>\n
When asked whether the Reserve Bank needed more flexible powers to respond to the situation, a spokesperson for finance minister Nicola Willis told The Spinoff the government had no plans to change the Reserve Bank\u2019s mandate.\u00a0<\/p>\n
Act\u2019s finance spokesperson Todd Stephenson (whose party sees Roger Douglas as a literal and philosophical forefather) defended the single mandate: \u201cThe Reserve Bank should not ignore or deprioritise its mandate,\u201d he said.<\/p>\n
\u201cIf the Bank was seen to take its eye off the inflation ball, this would impact inflation expectations, risking an inflation spiral. I\u2019d also point out that inflation was already outside of the target range before the Iran war began. We shouldn\u2019t rush to make excuses for the Reserve Bank \u2013 we should expect it to do its job.\u201d<\/p>\n
Although Labour introduced the dual mandate, it hasn\u2019t fought particularly hard for its return. It\u2019s not exactly a kitchen table issue on the minds of the median voter. When asked for her views, finance spokesperson Barbara Edmonds offered this string of words: \u201cDecisions about the official cash rate are for the independent Reserve Bank. While international factors are pushing up costs around the world, New Zealand families have been struggling even before the conflict began. Christopher Luxon promised he\u2019d fix it, but he\u2019s only made things worse.\u201d<\/p>\n
Green co-leader Chl\u00f6e Swarbrick argued that the difference between a single and dual mandate was overblown. \u201cThe single mandate is bullshit. It\u2019s not real, it hasn\u2019t changed anything,\u201d she said. \u201cI\u2019ve asked multiple Reserve Bank governors whether it would have changed their decisions if they had [a single mandate] and time and again they have said \u2018no\u2019.\u201d\u00a0<\/p>\n
The Greens feel that Labour and National-led governments have overstated the impact of Reserve Bank decisions and underestimated the impact of government spending decisions. They want the government to take a more active role in using fiscal policy to manage the economy.\u00a0<\/p>\n
Politically, it seems there is little appetite to change the bank\u2019s mandate. So New Zealand flies onward, into the coming storm, brandishing one of the bluntest instruments in world finance, to tackle one of the most complex issues in geopolitics. Let\u2019s hope it works out fine.\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"Inflation will almost certainly increase with supply chain shocks from the conflict in the Middle East. Is our…\n","protected":false},"author":2,"featured_media":326286,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[8133,138,219,246,73715,111,139,69,135,5651],"class_list":["post-326285","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-analysis","tag-business","tag-economy","tag-finance","tag-fiscal-policy","tag-new-zealand","tag-newzealand","tag-nz","tag-politics","tag-reserve-bank"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/326285","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=326285"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/326285\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/326286"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=326285"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=326285"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=326285"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}