Policy Area: Reserve Bank Act

Statement of General Direction:

To ensure monetary policy can make its maximum contribution to sustainable economic and employment growth, and development opportunities in New Zealand.

Key Initiatives of Policy:

1. To raise 0-2% target range to 0-3%.
2. To refer to sustainable economic growth and employment in the Policy Targets Agreement (see below).
3. To make no changes to the Reserve Bank Act 1987.

Fiscal Implications of this Policy Agreement:

Nil

Legislative Implications of this Policy Agreement:

None

Policy Targets Agreement

This agreement between the Minister of Finance and the Governor of the Reserve Bank of New Zealand is made under section 9 of the Reserve Bank of New Zealand Act 1989 (the A ct) and replaces that signed on 16 December 1992.

1. Price Stability Target

Consistent with section 8 of the Act and with the provisions of this agreement, the Reserve Bank shall formulate and implement policy with the intention of maintaining stability in the general level of prices, so that monetary policy can make its maximum contribution to sustainable economic growth, employment and development opportunities within the New Zealand economy.

2. Measurement of Price Stability

Amendment to 2(b) -

For the purposes of this agreement, 12-monthly increases in the Consumers Price Index of between 0 and 3% will be considered consistent with price stability.

3. Deviations from the Targets

Amendment to 3(b) -

This approach means that the Consumers Price Index inflation rate can be expected to move outside the 0-3% range in response to particular shocks.

Amendment to 3(c) -

In the event of such shocks the Reserve Bank shall be fully accountable for its handling of the price effects and, in particular, for any movements outside the 0-3% band.