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Roles and accountability
The Reserve Bank’s key responsibilities are to manage monetary policy to maintain price stability, promote the maintenance of a sound and efficient financial system, and supply New Zealand banknotes and coins that meet the needs of the public.
The Reserve Bank of New Zealand is the nation’s central bank. A statutory agency, the Bank performs functions derived from several pieces of legislation:
- the Reserve Bank of New Zealand Act 1989 (RBNZ Act), which specifies the Bank’s and the Governor’s capacity, functions and powers, as well as its monetary policy and banking supervision functions;
- the Insurance (Prudential Supervision) Act 2010 (IPSA), which provides for the Bank’s role as prudential supervisor of the insurance sector;
- the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML Act), which confers responsibility on the Bank as an Anti-Money Laundering/Countering Financing of Terrorism (AML/CFT) supervisor; and
- the Non-bank Deposit Takers Act 2013 (NBDT Act), which establishes the Bank as a prudential regulatory and licensing authority for non-bank deposit takers (NBDTs).
To achieve its purposes, the Bank’s functions cover: monetary policy formulation; financial market operations; macro-financial stability; prudential supervision; settlement services; and currency operations. These functions, the outcomes that the Bank targets, and the measures used to evaluate performance are described in the Bank’s Statement of Intent and Annual Report.
Appendix 1 details the significant powers and responsibilities of the Minister of Finance, the Reserve Bank, and the Reserve Bank Board, under each of the Acts listed above.
The RBNZ Act confers considerable day-to-day operational autonomy on the Bank, an important role for the Minister of Finance in various key decisions, and a robust accountability structure in which the Bank’s Board, the Minister and Parliament all have formal roles. The Bank publishes a range of accountability documents, including the Monetary Policy Statement (MPS), Financial Stability Report (FSR), a Statement of Intent (SOI) and an Annual Report. The Bank’s activities are examined by Parliament’s Finance and Expenditure Committee. Typically, select committee hearings are held covering the quarterly MPSs, the six-monthly FSRs and the Bank’s annual financial performance.
The Reserve Bank keeps the Minister and the Treasury informed on the economic outlook, policy developments and other significant matters affecting the Bank. We provide regular briefings on the economy ahead of each MPS. Recent practice has also included a scheduled meeting with the Minister and the Treasury approximately once every six weeks to discuss financial sector developments and provide updates on prudential policy matters. Other meetings are arranged as required to provide information and seek the Minister’s input, on particular regulatory policy issues.
Under the Memorandum of Understanding on Macro-Prudential Policy (MOU) the Bank commits to keep the Minister and Treasury informed about its thinking on macro-prudential policy developments, and to consult the Minister prior to any decision to deploy macroprudential policy instruments.
The Bank’s accountability includes an extensive external engagement and public speech programme. In 2017, it has delivered 127 presentations around New Zealand, of which nine have been on-the-record speeches. We provide copies of our on-the-record speeches to your office 1-2 days prior to delivery and inform you confidentially (by telephone) of our OCR decision and accompanying statement an hour before it is released. In 2018, the Bank plans to conduct its second External Stakeholder Engagement Survey. Its first such survey in 2014-15 covered general public and specific stakeholder groups (financial markets, regulated industry, business, educators/researchers).
Role of the Minister
The Minister of Finance has the following functions and powers under the RBNZ Act, IPSA and the NBDT Act:
- appointing the Governor on the recommendation of the Board;
- advising the Governor-General to remove the Governor from office, either on the recommendation of the Board or because statutory criteria for removal are made out;
- agreeing with the Governor the PTA and any variations to it;
- agreeing with the Governor a five-year funding agreement and any variations to it;
- various powers under Part 5 of the RBNZ Act, such as consent to the deregistration of or a direction to a registered bank, and advising the Governor-General to place a registered Bank into statutory management; and
- various powers under IPSA empowering statutory management of an insurer, and under the NBDT Act relating to approval of specific regulations.
Subject to procedures intended to ensure public transparency, the Minister of Finance can also:
- put in place an alternative monetary policy objective;
- direct the Bank to intervene in the foreign exchange market or deal in foreign exchange within fixed exchange rate bands; and
- direct the Bank to have regard to government policies relating to the Bank’s prudential functions under the RBNZ Act, IPSA and the NBDT Act.
The Minister provides an annual Letter of Expectations to the Governor (see Appendix 4 for the current Letter). The expectations are reflected in the Bank’s Statement of Intent. The Letter is posted on the Bank’s website when the SOI is published.
The Minister agreed with the Bank a Memorandum of Understanding on Macro-prudential policy and operating guidelines that is to be reviewed in 2018.