10 February 2025
Adam Irish
[FYI request #29761 email]
Dear Adam
Official Information Act (OIA) request for information regarding impact removal of dual
mandate has had on unemployment
We refer to your request to the Reserve Bank of New Zealand – Te Pūtea Matua (RBNZ) of 16 January
2025 for the fol owing:
I am writing to request information under the Of icial Information Act regarding the impact of
recent changes to the Reserve Bank of New Zealand (RBNZ) legislation, specifical y the removal
of employment considerations.
Could you please provide details on how much additional unemployment has resulted from these
changes, or how unemployment levels have been af ected compared to what would have occurred
had the previous rules remained in place?
Additionally, I would like to know what specific pieces of information relating to employment levels
were considered when setting the Official Cash Rate (OCR) under the previous government's set
of rules, which are no longer considered under the current framework.
Response
As you have noted, in 2023 the Minister of Finance issued a new Remit for the Monetary Policy
Committee (MPC). More information on this can be found at the fol owing link:
https://www.rbnz.govt.nz/hub/news/2023/12/monetary-policy-remit-amended.
The new Remit removed an objective to “support maximum sustainable employment” (the ‘MSE’
objective), which had sat alongside the inflation objective.
It is important to note that, despite changes to the Remit, the MPC continues to have regard to outcomes
in New Zealand’s labour market, such as employment, when formulating monetary policy. The MPC
Remit, whilst targeting 1 to 3 percent inflation, also says to operate without unnecessary volatility in
output, employment, interest rates, and the exchange rate. So, employment and output are stil explicit
considerations for the MPC.
Understanding developments in the labour market is important for monetary policy for a few reasons.
Developments in the labour market (e.g. employment) provide useful insights into domestic inflationary
pressure, volatility in the economy, and the transmission of monetary policy. We refer you to page 41 of
the
Monetary Policy Handbook, at the fol owing link:
https://www.rbnz.govt.nz/-
/media/project/sites/rbnz/files/monetary-policy/monetary-policy-handbook/monetary-policy-
handbook-july-2024.pdf.
2
In addition, the RBNZ has long operated under a ‘flexible inflation targeting’ framework (see chapter 2
of the
Monetary Policy Handbook linked above). This means there is some flexibility within the inflation
target in order to support the RBNZ’s ability to maintain broader stability in the economy. For example,
the current MPC Remit requires the RBNZ to “seek to avoid unnecessary instability in output,
employment, interest rates, and the exchange rate” while pursuing the inflation objective. “Employment”
was added to this requirement at the same time the MSE objective was removed. The current MPC
Remit is available online at the fol owing link:
https://www.rbnz.govt.nz/-/media/project/
sites/rbnz/files/monetary-policy/about-monetary-policy/december-2023-monetary-policy-committee-
remit.pdf.
The MPC therefore continues to monitor developments in New Zealand’s labour market. The MPC is
presented with a broad range of metrics on the labour market. The selection of indicators we monitor
has not changed as a result of the removal of the MSE objective, and we have continued to invest in
our monitoring of the labour market. This is discussed in the RBNZ Analytical Note
Assessing and
communicating labour market indicators of inflationary pressure, available at the following link:
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/research/assessing-and-communicating-
labour-market-indicators-of-inflationary-pressure.pdf.
The ‘Labour market indicator suite’ from RBNZ’s November 2024 Monetary Policy Statement provides
an example of the types of indicators the RBNZ monitors (see attached as Appendix 1 for ease of
reference).
It is not possible to know with certainty how the decisions of the MPC would have played out under an
alternative Remit. However, we consider that the removal of the MSE objective is unlikely to have had a
material influence on the stance of monetary policy or on employment outcomes for the reasons set
out above.
You have the right to seek an investigation and review by the Ombudsman of this Official Information
Act response. Information about how to make a complaint is available at
www.ombudsman.parliament.nz or freephone 0800 802 602.
We intend to publish this response on the Reserve Bank’s website at:
www.rbnz.govt.nz/research-and-
publications/of icial-information-requests. We do this in order to improve transparency and provide an
additional resource for anyone seeking information.
Yours sincerely
Government Relations
Reserve Bank of New Zealand – Te Pūtea Matua
Appendix 1 – from November 2024 Monetary Policy Statement
Document Outline
