Reserve Bank on revised monetary policy framework

New Zealand’s revised monetary policy framework and the imperative for institutional change

At a Reserve Bank event in Wellington this morning, the Governor of the Reserve Bank, Adrian Orr, spoke about how the business of central banking is evolving. The event was held ahead of New Zealand’s new Monetary Policy framework taking effect on 1 April 2019.

“The changes to how monetary policy is conducted in New Zealand will bring greater transparency and accountability to how we serve society,” Mr Orr said.

“The dual inflation and employment mandate, and the more transparent committee decision-making structure, will better display our monetary policy processes, benefits, and limitations. The formal inclusion of external members in our decision making processes also adds to our legitimacy to independently operate monetary policy.”

Mr Orr said there is a long list of challenges ahead for the Reserve Bank of New Zealand.

“For example, we operate in an environment that includes rising global economic inter-dependence, ongoing dominant local and global financial institutions, increased debt burdens, and technological change that challenges employment and financial inclusion norms. We are also faced with the economic implications of climate change, and must ensure the broad financial system plays its role in managing and mitigating these risks. However, central banks have limited tools and persuasion at their disposal, and therefore must use these effectively. We must also be clear to society as to what we can and can’t achieve.”

Mr Orr said the Reserve Bank remains grounded in the times of change, and has not lost focus on its core business.

“We are committed to meeting the currency needs of the public, ensuring low and stable inflation, supporting maximum sustainable employment, and promoting a sound and efficient financial system. These activities are necessary for economic wellbeing.”

“But, we will also work beyond the ‘necessary’. We aim to ensure that both ‘necessary’ and ‘sufficient’ work is done so that the Bank is best able to promote the prosperity and wellbeing of New Zealanders, and contribute to a sustainable and productive economy.”

Over the past year the Reserve Bank has embarked on several review and public consultation processes – some still underway – that have spanned the monetary and financial policy frameworks, as well as the role of currency.

“We intend to work collectively – locally, regionally, and globally – in pursuit of maximising our mandate. We desire to be a great team and the world’s best central bank. The resounding results that past and present people at the Reserve Bank have achieved provide a fantastic platform to progress this work,” Mr Orr said.

More information:

• Speech and video: In service to society: New Zealand’s revised monetary policy framework and the imperative for institutional change

• Monetary Policy framework

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