Background
High inflation is mainly a question of money (too much money chasing too few goods, services and investments). In New Zealand's case, inflation has been made worse by reckless government spending, especially since 2020. External shocks (e.g. an increase in oil prices) can also cause inflation, but this is largely outside government control.
A main responsibility of the Reserve Bank of New Zealand is to influence the New Zealand dollar money supply, through a variety of mechanisms, including: speaking with authority, setting policy for the banking sector, setting benchmark interest rates, and engaging in financial market operations.
Reserve Bank Independence
In the late 1990s and early 2000s, a big show was made of making central and reserve banks independent. However, from 2008 onwards (Great Financial Crisis) and from 2020 onwards (Covid-19), central and reserve banks across the Western world have tended to follow policies that are highly favourable (in the short term) to their incumbent governments. In other words it is not clear that they are independent.
In New Zealand's case, rapid expansion of the money supply, combined with very low interest rates and a large programme of quantitative easing, have allowed a reckless Labour administration to borrow tens of billions of dollars and to abandon all fiscal discipline. As is always the case with irresponsible monetary policy, the chickens have come home to roost, and we are now seeing high and persistent inflation, higher interest rates, and an economy in recession. A large part of all these problems is self-inflicted.
Through its quantitative easing program the Reserve Bank bought bonds on a large scale in an attempt to influence interest rates. The Bank (and ultimately the New Zealand taxpayer) has lost an estimated $10 billion on these purchases.
Role of the Reserve Bank Governor and Board
New Zealand has higher and more persistent inflation than other countries. Responsibility for this must be laid at the feet of the Governor of the Reserve Bank of New Zealand and his decisions. It is not clear that other members of the Reserve Bank board have the authority to challenge the Governor (some of them have no experience relevant to banking, finance or governance).
In March 2023, the Governor of the Reserve Bank of New Zealand was re-appointed for another 5-year term over the objections of the National and ACT parties. This is unusual. New Conservative shares their concerns.
We also note that the current Governor likes to pronounce on trendy political subjects well outside the remit of the Reserve Bank. This undermines the independence of the Reserve Bank (by making it look like he is a political appointee).
Monetary Policy
- New Conservative favours low inflation and more stable (predictable) interest rates.
- As part of a right-leaning government, we will work to restore the independence of the Reserve Bank of New Zealand.
- We call for the Board of the Reserve Bank to be strengthened by the appointment of high quality candidates, with relevant experience.
- We call for caution in increasing government expenditure, especially at times of high inflation.
- We oppose the introduction of a Central Bank Digital Currency (because of the risks to freedoms and civil liberties that it brings).