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New MPC Remit and Charter

The Reserve Bank acknowledges the new Remit for the Monetary Policy Committee (MPC) issued by the Minister of Finance.

The MPC Remit sets the operational objectives for monetary policy. The new Remit retains an inflation target of 1% to 3% over the medium-term, with a focus on the 2% mid-point, and also the objective to support maximum sustainable employment.

“This largely represents a continuation of the current monetary policy regime, with some changes that support more clarity for the monetary policy objectives,” RBNZ Board Chair Neil Quigley says.

The Reserve Bank provided advice to the Minister as part of its statutory requirement to review the Remit. This incorporated feedback from 2 public consultations, findings from surveys and public workshops, and relevant analysis on key monetary policy issues.

“We would like to thank all those who contributed to the review through public submissions and other forms of engagement,” Mr Quigley says.

The MPC and the Minister also agreed to update the MPC Charter as part of this review.

The new Charter reconfirms that the MPC decision-making process should focus on seeking consensus where possible. The MPC still retain the option of taking a vote, for example on the Official Cash Rate, if a consensus is not reached.

The new Charter also clarifies expectations of MPC members when speaking publicly on issues relevant to monetary policy, as well as including communication requirements relating to processes followed in reaching monetary policy decisions, such as around the considerations in the choice of monetary policy tools.

More information 

Questions and answers

The Remit defines the MPC’s operational objectives. The Remit can do this by defining targets for objectives, offering guidance on how the MPC should go about achieving these targets, and setting out what other factors the MPC should take into account in its decisions. The Remit must be consistent with the economic objectives in the RBNZ Act 2021, of achieving and maintaining price stability and supporting maximum sustainable employment.

The Act requires the Reserve Bank to advise the Minister of Finance about possible changes to the Remit at least every five years. This ongoing process of review ensures that the long-run framework that guides monetary policy decisions best supports the economic wellbeing of New Zealanders, and that the framework remains relevant and fit-for-purpose in light of changes to the structure of the economy.

This Remit Review – which commenced in June 2022 – was the first review of the Remit under the Reserve Bank of New Zealand Act 2021.

The changes introduced in the new remit support more clarity for the monetary policy objectives and are not expected to substantively change monetary policy strategy.

The Charter outlines the decision-making procedures for the MPC and sets out requirements to support transparency and accountability. The Charter aims to facilitate effective decision-making by the MPC and ensure transparency of these decisions and the decision-making process, to aid the effectiveness of monetary policy and hold the MPC accountable.

When deciding whether to revise the Remit following the Remit Review, the Minister of Finance and the MPC are required by the Act to consider whether the Charter should be amended.

Unlike the Remit – which is set by the Minister following advice from the Reserve Bank – the Charter is agreed between the MPC and the Minister.

The changes to the Charter provide clarity on the requirements of the MPC and largely formalise processes that already occur. The new requirement for the MPC to explain, where relevant, the considerations for its choice of monetary policy tools aligns with the Bank’s existing principles governing monetary policy tools. The requirements around fiscal and monetary policy coordination also largely formalise existing practices around information sharing. Additionally, the new Charter also provides clarity on the requirements for MPC members making public comments.

The advice will be published on the RBNZ website shortly after the new Remit is notified in the Gazette, as per the Reserve Bank Act.

The new Remit and Charter are effective from 28 June 2023.