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Summarised by Centrist
Former Reserve Bank governor Don Brash says the central bank’s core job is simple: keep inflation between one and three percent, and don’t let politicians meddle.
Brash told The Platform that before the landmark 1989 Reserve Bank Act, politicians would cut interest rates to create a short-term feel-good effect, even though monetary policy only works with a 12 to 18-month lag. “Everyone felt good,” he recalled. But the result was inflationary spikes that undermined the economy.
Since then, the Reserve Bank has been tasked with price stability alone. Brash dismissed Labour’s experiment with a “dual mandate” covering both inflation and economic growth.
The main tool, he explained, is the Official Cash Rate (OCR), which sets the floor for interest rates. Other tools, like large-scale bond buying under Adrian Orr, had “disastrous effect[s]” and cost taxpayers billions when bond values fell.
Beyond numbers, Brash suggested: “Quite apart from the numbers a lot of the inflation success of a central bank is affecting expectations … by making it absolutely clear, talking to audiences up and down the country.”
That’s where the new governor comes in. Dr Anna Breman, a Swedish economist with a PhD and experience at Sweden’s Riksbank, will take over in the new year. Brash said her role as chair of the Monetary Policy Committee makes her the most influential voice on interest rate decisions.
