About the Bulletin
New work released today is part of our continuous evaluation and improvement of monetary policy and will be an input into the next full Review and Assessment of the Formulation and Implementation of Monetary Policy (RAFIMP) in 2027. The 2027 RAFIMP will provide a formal set of lessons learned and areas for improvement.
The paper released today offers some interim reflections on the MPC’s decision-making:
- The MPC has better insight into how inflation and inflation expectations can develop over a high inflation period. Inflation and inflation expectations can move quickly in the initial stages of high and rising headline inflation, and non-tradables inflation can prove quite persistent during the disinflationary process.
- The MPC has better insight into the dynamics of the New Zealand economy, and how different sectors contribute and respond to inflationary pressures. This includes insight into the role of fiscal and monetary policy in addressing health-related events, the macroeconomic impact of migration and international labour, and the resilience of New Zealand households to house price fluctuations.
- The MPC’s chosen strategy contributed to inflation returning to the target band, although with the benefit of hindsight earlier or faster tightening may have delivered better inflation outcomes. The MPC raised the Official Cash Rate (OCR) to ensure that inflation expectations remained well-anchored, and that domestic inflationary pressures credibly returned to the target band. Containing inflation completely within this band would have caused significant costs to the real economy.
- The stimulus provided by additional monetary policies was offset by a slightly higher OCR during the tightening cycle. As identified in the 2022 RAFIMP, it is important to have a credible and adaptable exit strategy for these additional policies.
- Communication of the MPC’s strategy was mostly clear, but some improvements could be made around the forward OCR track. It is important to be clear and consistent about the purpose and interpretation of the forward OCR track.
- The MPC used the best possible information to inform their forecasts in the face of significant data uncertainty. High-frequency data supported the MPC’s decision-making. As identified in the 2022 RAFIMP, improvements could be made around judgements for the trajectory of fiscal spending.