Monetary Policy Framework

About the framework

There are 4 key components to New Zealand’s monetary policy framework:

• the Remit
• the Charter
• the code of conduct
• the monetary policy strategy

The Remit is the document that guides our Monetary Policy Committee’s (MPC) decision making on monetary policy and Official Cash Rate adjustments every 6 weeks.

The MPC is also bound by a Charter and code of conduct.

The Charter provides directions on decision-making procedures, transparency and accountability. The MPC makes decisions and communicates them in line with the Charter.

The code of conduct sets out minimum standards of ethical and professional conduct that MPC members must follow.

The MPC’s monetary policy strategy is the overarching plan for how they will formulate monetary policy under different circumstances to achieve their objectives.

Read about the history of the monetary policy framework in New Zealand

Remit

Monetary policy plays an important role in supporting economic prosperity. The Minister of Finance can set the targets for the MPC’s objectives, offer guidance on how the MPC should go about achieving these targets, and set out what other factors the MPC should take into its decisions.

The Minister does this by issuing a Remit for the Monetary Policy Committee.

The current Remit came into effect on 20 December 2023, the day after Royal Assent of the Reserve Bank of New Zealand (Economic Objective) Amendment Act 2023

Charter

The MPC Charter is required by 'the Act' to broadly cover:

• requirements to promote transparency and accountability
• requirements for summary records of the MPC’s meetings and other information published by the MPC and decision-making procedures.  

As part of the Remit Review, the Minister of Finance and the MPC are required to consider whether the Charter should be amended. The Charter is agreed between the MPC and the Minister of Finance.

The current 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.

Code of conduct

The code of conduct came into effect on 1 April 2019.

The MPC code of conduct sets out minimum standards of ethical and professional conduct that MPC members must follow. It was approved by our Board on 19 February 2019.

The monetary policy strategy

The MPC's monetary policy strategy outlines a consistent approach to how the MPC intends to achieve its objectives across time, accounting for trade-offs and uncertainty. Agreeing on and publishing a strategy promotes transparency, public understanding, and accountability.

The MPC’s risk appetite statement

The MPC faces a range of risks when formulating policy – some of which are unavoidable. The MPC details a Risk Appetite Statement (RAS) to outline its appetite for each type of risk it faces. The most recent RAS was published in March 2024.

Read the MPC's risk appetite statement (PDF 198KB)

Memorandum of Understanding between the Treasury and the Reserve Bank of New Zealand

• The Treasury observer role was formally established in February 2019 but has effectively been in place since 2018.
• The function of the Treasury observer is to:
  a) support decision making by the Monetary Policy Committee (MPC) (for example, by sharing information on fiscal policy); and
  b) facilitate the co-ordination of monetary and fiscal policy; and
  c) carry out any other function agreed between the chairperson and the Secretary to the Treasury.

Memorandum of Understanding between the Treasury and the Reserve Bank of New Zealand regarding the role of the Treasury observer in respect of the Monetary Policy Committee (PDF, 226 KB)

Regular reviews of monetary policy in New Zealand 

The Reserve Bank of New Zealand Act 2021 requires us to undertake 2 review processes at least every 5 years:

• Review of the Monetary Policy Remit (Remit Review); and
• Review and assessment of the formulation and implementation of monetary policy (RAFIMP). 

These regular processes of review make sure that the operational monetary policy framework remains fit for purpose.