Our goal: keep inflation low and stable
One of our key objectives at Te Putea Mātua is to maintain price stability. We use monetary policy to influence how much it costs to borrow and save.
Our Monetary Policy Committee (MPC) decides how to use monetary policy to keep inflation low and stable. Its main tool is the Official Cash Rate (OCR), which influences interest rates across the economy.
Our inflation target is 1% to 3% over the medium term. Our focus is on keeping future inflation near the 2% midpoint, which is approximately 1-3 years.
When inflation is low and stable, households and businesses can plan ahead with more confidence.
The MPC currently has 6 members, but it can have between 5 and 7. It’s made up of a mix of internal and external members.
3 internal RBNZ members
- our Governor
- our Assistant Governor Money
- our Chief Economist.
3 external members
- who bring different knowledge, skills and experience.
The Minister of Finance appoints the members based on recommendations from the RBNZ Board. This mix of internal and external members helps bring a range of perspectives to each decision.
What does the MPC do?
The MPC meets 8 times a year to regularly assess the outlook for the economy and adjust policy if needed to ensure it meets its inflation target. It can meet at any time to set monetary policy if economic conditions make this necessary, like during the pandemic.
The MPC’s key tool is where to set the OCR to influence inflation. The OCR is the interest rate we charge banks when they borrow from us.
By raising or lowering the OCR, we can help
- slow demand to reduce inflation when prices are rising too quickly, or
- support activity when the economy is weak.
The MPC brings together a wide range of information to understand what’s happening now and what’s likely to happen next.
This includes:
- economic data, such as inflation, employment, spending and growth
- forecasts and models of future economic conditions
- risks and uncertainties in the outlook
- insights from businesses, communities and financial markets
- expert judgement and discussion.
The MPC doesn’t rely on a single piece of information. It looks at the full picture before making a decision.
There is often no single “right” answer. For example, raising interest rates can reduce inflation, but it can also slow economic growth and increase unemployment too much. This might mean inflation is too low in the future.
So, the MPC considers:
- risks on both sides
- how confident it is in the outlook, and
- the likely effects on households, businesses and the wider economy.
The aim is to keep inflation low and stable without causing unnecessary swings in the economy.
Monetary policy takes time to work its way through the economy. That’s why there’s a focus on where inflation is heading, not just where it is today.
The MPC takes a flexible approach when making decisions. This means they:
- avoid overreacting to short-term inflation shocks
- aim to minimise unnecessary disruption to households and businesses
- adjust policy gradually where appropriate.
This is known as flexible inflation targeting - balancing price stability with a stable economy.
How we explain our decisions
We publish information alongside each OCR decision to explain:
- what we decided (including the result of any vote needed on the final decision)
- why we made that decision
- how we see the economy evolving.
Past decisions and record of MPC meetings
Explaining our decisions helps build understanding and trust, keeps us accountable, and gives households and businesses confidence to plan ahead.
It also makes clear how we are working to keep inflation low and stable over time.
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