Labour Vows to Restore RBNZ Dual Mandate with Employment Focus

New Zealand's Labour Party has announced plans to restore the Reserve Bank of New Zealand's dual monetary policy mandate if elected in November. The dual mandate targets both inflation and maximum sustainable employment, a focus that was removed by the current Coalition Government in 2023.

According to Westpac commentary, reinstating the dual mandate would make little practical difference during demand-driven shocks, when inflation and employment tend to move together. However, it could give the Reserve Bank more flexibility to let inflation run above target for longer during supply shocks, such as an oil price spike.

This flexibility would be contingent on the Monetary Policy Committee's confidence in medium-term inflation persistence, meaning their own expectations about how long elevated inflation will last. Westpac warns that allowing temporary inflation shocks to become embedded in business pricing behaviour and wage expectations could prove damaging in the long run.