New Zealand central bank governor says markets understand its focus
(Adds details and more comments from Governor Orr)
WELLINGTON, March 29 (Reuters) - Market reaction to New
Zealand central bank's unexpected shift to an easing bias this
week showed that they understood what policymakers were focused
on, Governor Adrian Orr said on Friday.
At a policy review on Wednesday, the Reserve Bank of New
Zealand kept rates unchanged but surprised markets by flagging
the next move in rates was likely to be a cut. The currency fell
sharply and bond and bill futures rallied as a rate cut was
"What I was pleased with from the outcome of that discussion
(around the review) is that markets have shown they understand
what we are focused on," Orr said in a response to a question
after he delivered a speech in Wellington.
"If financial markets watch us and we watch them then we are
just looking at a mirror, we are not learning anything. So
markets have to be forward looking and work very hard to learn
what we are trying to achieve," Orr said.
Governor Orr's speech talked about the future of New
Zealand's monetary policy framework.
New Zealand's government on Thursday announced the initial
seven members of the central bank's new monetary policy
committee (MPC), which includes three external and four internal
The new monetary policy committee (MPC) will make its first
decision at the next cash rate review on May 8 and will transfer
power on rate changes from the governor alone to a panel of bank
staff and external members.
The MPC's remit follows RBNZ's existing goals of keeping
medium-term inflation between 1-3 percent and supporting maximum
He said that the country enjoys low and stable inflation,
low unemployment, and broad financial stability but this
advantageous position must never be taken for granted.
"In addition to maintaining the status quo, we have new and
significant long-term economic challenges among which central
banks operate," Orr said in his speech.
He said the bank has to deal with global economic
inter-dependence, dominant financial institutions, significant
debt burdens, technological change that challenges employment
and financial inclusion norms, climate change, and much more.
Moving from a high-inflation environment to a low-inflation
one was an amazing achievement for the bank, he said, but it
should not now be assumed that low inflation is a given.
Orr said while unemployment is currently low in New Zealand,
it is, and will continue to be, one of the defining issues of
"Historically, the bank has always taken labour market
developments into account while formulating monetary policy,"
"Over time, this has been encouraged by our increasingly
flexible approach to inflation targeting."
(Reporting by Praveen Menon; Editing by William Maclean and
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