Labour’s dual mandate pledge sparks debate
Labour has confirmed that, if elected to government, it would require the Reserve Bank’s Monetary Policy Committee (MPC) to maintain “maximum sustainable employment” as part of its objectives. The pledge, announced by Labour’s Chris Hipkins and Barbara Edmonds, with backing from Carmel Sepuloni and Willie Jackson, has drawn sharp criticism from Wellington Business Editor Jenée Tibshraeny in the NZ Herald. She argues that New Zealanders have “little to gain and much to lose” from Labour “playing politics with the Reserve Bank” by campaigning on reinstating the dual mandate.
Economists split on next OCR move
The debate comes as the Reserve Bank prepares for its next official cash rate (OCR) decision. The bank lifted the OCR from 25% to 50% in July — the first hike in three years. Markets and economists are now looking ahead to next Wednesday’s review.
Kiwibank says it expects the OCR to rise again to 75% next week, before reaching 3% later this year. However, the bank’s economists argue that interest rates should remain “stimulatory” for now, “to encourage investment and hiring”. They say “the economy needs support, and inflation pressures should ease from here”.
Kiwibank points to rising unemployment and underemployment, subdued wage growth of around 2%, and weakness in the housing market as signs that further rate hikes are not yet needed. “If it were up to us, we would have left the cash rate at 25%, and look to commence tightening after the election,” the economists said.
They also noted that uncertainty from the war in the Middle East has caused businesses to delay or cancel projects and households to pull back spending, with economic activity potentially contracting in the June quarter. “The economic recovery has hit yet another speed bump,” the Kiwibank economists said. They added: “It is simply too early to assess the inflationary pulse, and the likely unwind. It is too early to gauge the impact on demand. And it is too early to see the adverse effects in the labour market. Therefore, it is too early for the RBNZ to hike.”
Westpac sees further tightening ahead
Westpac, by contrast, also anticipates a 25 basis point hike next week and another later this year, taking the OCR to 3% by the end of 2026. But it expects rates to continue rising through 2027, reaching 4% as the Reserve Bank works to bring persistent underlying inflation back towards its target.
Westpac chief economist Kelly Eckhold said the economy appeared to be regaining momentum after a difficult few months, with growth forecast at 2% this year and 3% in 2027. However, he noted that core inflation has now sat above the 2% midpoint of the RBNZ’s target band for five years, and headline inflation has remained above 3% until mid-2027.
Differing views on the dual mandate
The differing outlooks from Kiwibank and Westpac highlight the broader uncertainty facing the Reserve Bank as it balances price stability against employment objectives. Labour’s proposal to restore the dual mandate would re-emphasise the employment side of the bank’s remit, a move its critics argue could complicate the fight against inflation and ultimately raise costs for households.
Supporters of the dual mandate argue that focusing solely on inflation risks neglecting the labour market, which they say needs support during a fragile recovery. But opponents, including the NZ Herald’s Tibshraeny, contend that political interference in the central bank’s mandate is unwise at a time when inflation remains above target.
The Reserve Bank is scheduled to announce its next OCR decision next Wednesday. Until then, the debate over the pace of tightening and the appropriate scope of the bank’s objectives is likely to intensify.