Reserve Bank rules that influence the level of interest New Zealanders pay on their mortgage are to undergo their biggest overhaul in nearly 30 years.
Finance Minister Grant Robertson today confirmed the review is a top priority in the coalition Government's first 100 days.
"As part of the coalition agreement between New Zealand first and Labour there was agreement to review and reform the Reserve Bank Act," Mr Robertson said.
The review, which was kicked off today, aims to change the way the Reserve Bank goes about setting the Official Cash Rate, which influences mortgage rates.
"The consideration that goes into the movement of the Official Cash Rate needs to include a consideration of what happens with employment outcomes," Mr Robertson said.
Requiring the Reserve Bank to consider the jobless rate as well price stability would bring New Zealand into line with Australia, and it could see interest rates set lower to stimulate job growth at times of high unemployment.
"Perhaps if the Reserve Bank's on the cusp of 'should we hold or should we hike?' the employment target might come into it and push them one way or the other," said Dominick Stephens, Westpac chief economist.
However Mr Stephens says homeowners should not get too excited.
"It certainly will not change the average level of interest rates. You can't get something for free. There is no silver bullet that's going to reduce interest rates in New Zealand," he said.
National Party leader Bill English said it's hard to tell whether the Government "is trying to do some window dressing or make some fundamental change".
But Mr Robertson insists change is good for the economy.
"We are committed to producing high quality jobs that pay decent wages, and we want all aspects of the economic apparatus to play their part in achieving that, including monetary policy" he said.
The review is expected to be completed by March, just in time for the appointment of a new Reserve Bank governor.
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