The Reserve Bank governor’s power over interest rate decisions will be reviewed, after years of denials by the National government that this issue needed to be considered.
Former State Services Commissioner Iain Rennie has been appointed by Treasury to investigate both the Reserve Bank’s process for determining movements in the official cash rate (OCR), and whether the bank should be in charge of the legislation it operates under.
The review was requested by Finance Minister Steven Joyce. …
While Reserve Bank Governor Graeme Wheeler insists the decision over whether to raise or lower the OCR is made by committee, that process is voluntarily.
Almost uniquely for central banks anywhere, Wheeler and his predecessors have the sole power over interest rates, which critics warn gives unrivalled power to an unelected official.
RB Governor is a very powerful position. But his job is to adjust the OCR so that (underlying) inflation stays within the target range. The Government sets the target range.
There is a case for having the decision made by a committee, than the Governor alone. A group decision may be more sound than an individual decision. However you would get a reduction in accountability. The Government can hold the Governor responsible for allowing inflation to get too high. A committee can’t really have the same degree of accountability. There is a danger that a committee would be softer on inflation as no one would be at risk of losing their jobs if inflation does creep up.