How the review of the Reserve Bank will proceed - Westpac

Analysts at Westpac explained that the Minister of Finance has explained how the review of the Reserve Bank will proceed.

Key Quotes:

"The Minister of Finance has revealed the terms of reference for the upcoming review of the Reserve Bank.
A two-phase review of the Reserve Bank is planned. Phase one exactly matches the Labour Party’s election manifesto on the Reserve Bank – this part of the review is charged with executing Labour’s plan to give the Reserve Bank a dual mandate of employment and inflation (along the lines of the US and Australia) and introducing a committee for making monetary policy decisions (similar to the Bank of England).

This was no surprise. However, it did serve to confirm the Government’s plan and ruled out speculation about wider changes to the Reserve Bank’s functions. It also gave us an indication of time frames. The intention is to complete the review by March, when a new Governor will be appointed.

Phase two of the review is broader, but the details are not yet known. The RBNZ and Treasury will prepare a list of RBNZ functions to be reviewed, including macroprudential policy.

We cannot anticipate what phase 2 will cover, but at the press conference, the Minister of Finance was quoted as saying that he had no desire to include the exchange rate in the review. This last detail will be seen as a positive by those who favour orthodox monetary policy. We believe that this comment was the reason for the positive market reaction to the news. The NZD rose 0.7%, presumably as markets were able to rule out actions specifically designed to lower the exchange rate."