Decision by committee: New Zealand government takes observer role in central bank policy board

WELLINGTON (Reuters) – New Zealand Treasury Secretary Gabriel Makhlouf will take on the role of an observer on the central bank’s newly-formed Monetary Policy Committee (MPC), a move that has raised concerns about a potential erosion of the bank’s independence.

Makhlouf will formally take up the role of Treasury observer from April 1, the Reserve Bank of New Zealand (RBNZ) said in a statement on Friday.

“In this capacity, Mr Mahklouf will attend meetings of the MPC as a non-voting observer,” the statement said.

“His role will be to support decision making by the MPC (for example by sharing information on fiscal policy), and facilitate co-ordination of monetary and fiscal policy,” it added.

After assuming power in 2017, the center-left Labour Party initiated a proposal to make a committee responsible for policy decisions rather than the governor alone.

Future decisions on interest rates, beginning with the policy review on May 8, would be taken by the committee comprising four RBNZ members and three external appointments with Governor Adrian Orr as its chair.

Critics have questioned the plans saying external members and a government observer in the MPC would erode the bank’s independence.

Governor Orr, however, dismissed these concerns and said the new committee would have no impact on the direction of the interest rates and laws are in place to ensure the decision-making process is effective and transparent.

The other external members of the MPC are expected to be announced soon.

RBNZ said in the statement that Mahklouf has already been attending monetary policy deliberations and rate decisions as an observer since October 2018, in preparation for formally taking up the role.

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