The Remit for the Monetary Policy Committee (MPC) outlines the objectives that the MPC must use monetary policy to pursue, as set by the Minister of Finance.
Before 1 April 2019, our Governor had sole legal responsibility for monetary policy, and monetary policy objectives were outlined in a policy targets agreement (PTA) with the Minister of Finance.
First PTA signed
The first PTA defined price stability as an inflation rate between 0% and 2%, to be achieved by December 1992. We succeeded, achieving and maintaining inflation of around 2% from 1991.
A medium-term focus for inflation
Having brought inflation under control, we began to focus more on the medium-term outlook for inflation. This allowed for more flexibility for monetary policy to stabilise the real economy. It also recognised that monetary policy affects inflation with a lag, so it allowed for inflation to deviate from the target for short periods of time.
The initial objective of keeping inflation between 0% to 2% was replaced with a target band of 0% to 3% inflation in 1996, allowing for more flexibility in managing trade-offs. In 2002, the target range was narrowed to 1% to 3% inflation over the medium term.
2% mid-point focus
In 2012, an explicit focus was given to the 2% mid-point of the 1% to 3% target range. This was important to anchor inflation expectations to 2%. Without a mid-point target, inflation expectations may float to either end of the 1% to 3% band, depending on the economic outlook. In practice, we were already point-targeting 2% inflation, but formalising it in the PTA had a stronger effect on anchoring inflation expectations.
Maximum sustainable employment added as monetary policy objective
Since 1990, inflation has been the main objective in the PTA and our previous legislation the Reserve Bank of New Zealand Act (1989) (the Act). However, we also considered the variability of employment and output – key indicators of the real economy – when setting monetary policy. The final PTA, signed in 2018, added an additional policy objective: for us to contribute to supporting maximum sustainable employment (MSE). This was to be pursued alongside the inflation target.
The Act was amended in 2018, shortly after employment was added as a PTA objective. The new Act replaced the Governor as sole decision-maker with a Monetary Policy Committee (MPC) as the decision-making body. It also formally introduced supporting maximum sustainable employment as an economic objective alongside promoting price stability.
The Monetary Policy Committee Remit replaced the PTA
Under the new Act, the Remit for the MPC replaced the PTA. The first Remit for the new MPC was introduced in 2019 when the Act amendments came into effect.
Monetary Policy Committee Remit April 2019 (PDF, 86 KB)
Monetary Policy Committee Charter April 2019 (PDF, 153 KB)
Monetary Policy Committee Remit February 2021 (PDF, 363 KB)
Monetary Policy Committee Charter March 2021 (PDF, 107 KB)
The first Remit Review
Under the Reserve Bank of New Zealand Act, we must carry out a review of the Remit at least every 5 years. We carried out the first Remit Review across 2022 and 2023. Findings from the review largely endorsed the existing framework of monetary policy, with some changes to improve clarity.
In June 2023, the Minister of Finance issued a new Remit.
This new Remit took into account advice we provided to the Minister as part of 2022 to 2023 review of the Remit. This review included findings from research and analysis, as well as public feedback from surveys, workshops, and 2 public consultations.
House price sustainability was retained in the framework, but it was moved out of the Remit objectives and into the Charter. This move was to support the distinction between operational targets in the Remit, and Monetary Policy Committee reporting requirements in the Charter.
Monetary Policy Committee Remit June 2023 (PDF, 85 KB)
Removing maximum sustainable employment
The amended Remit retains an inflation target of 1% to 3% over the medium-term, with a focus on the 2% mid-point. This Remit removes the objective to support maximum sustainable employment, but employment has been added as one of the variables MPC should seek to avoid unnecessary volatility in.
The amendment is consistent with the views expressed in the first Remit Review — giving the inflation objective priority will assist the credibility of the inflation target and maintaining the flexible inflation targeting approach will best minimise unnecessary instability in the economy and financial markets.
Read more about the changes
This Charter came into effect on 20 December 2023, the day after Royal Assent of the Reserve Bank of New Zealand (Economic Objective) Amendment Act 2023.
Monetary Policy Committee Charter December 2023 (PDF, 878 KB)