Monetary Policy Framework
This page sets out the details of the remit, charter and code of conduct that together form the monetary policy framework under which the Monetary Policy Committee operates and makes decisions.
About the framework
Amendments to New Zealand’s monetary policy framework came into effect on 1 April 2019. The framework has three key components:
- the remit
- the charter
- the code of conduct.
The remit provides the Monetary Policy Committee (MPC) with its operational objectives, consistent with the economic objectives in Section 8 of the Reserve Bank of New Zealand Act 2021 (the Act). A replacement remit came into force on 1 March 2021.
The MPC is also bound by a charter and code of conduct. The charter provides directions on decision-making procedures, transparency and accountability. The code of conduct sets out minimum standards of ethical and professional conduct that MPC members must adhere to.
Monetary policy plays an important role in supporting the government’s economic objective. The Reserve Bank of New Zealand Act 2021 (the Act) requires that monetary policy promote the prosperity and wellbeing of New Zealanders, and contribute to a sustainable and productive economy. Monetary policy contributes to public welfare by reducing cyclical variations in employment and economic activity while maintaining price stability over the medium term.
The government’s economic objectiveThe government’s economic objective is to improve the wellbeing and living standards of New Zealanders through a sustainable, productive and inclusive economy. The government’s priority is to move towards a low carbon economy with a strong diversified export base that delivers decent jobs with higher wages and reduces inequality and poverty. An effective functioning housing market is a critical component of a sustainable and inclusive economy and promotes the maintenance of a sound and efficient financial system.
Monetary policy plays an important role in supporting the government’s economic objective. The Reserve Bank of New Zealand Act 2021 (the Act) requires that monetary policy promotes the prosperity and wellbeing of New Zealanders and contributes to a sustainable and productive economy. Monetary policy contributes to public welfare by reducing cyclical variations in employment and economic activity while maintaining price stability over the medium term.
This remit is issued by the Minister of Finance to the Monetary Policy Committee (MPC) under Clause 3, Schedule 1 of the Act.
1) Monetary policy objectivesUnder Section 8 of the Act, the Reserve Bank, acting through the MPC, is required to formulate monetary policy with the goals of maintaining a stable general level of prices over the medium term and supporting maximum sustainable employment.
2) Operational objectives
For the purpose of this remit, the MPC’s operational objectives shall be to:
- keep future annual inflation between 1% and 3% over the medium term, with a focus on keeping future inflation near the 2% midpoint. This target will be defined in terms of the All Groups Consumers Price Index, as published by Statistics New Zealand
- support maximum sustainable employment. The MPC should consider a broad range of labour market indicators to form a view of where employment is relative to its maximum sustainable level, taking into account that the level of maximum sustainable employment is largely determined by non-monetary factors that affect the structure and dynamics of the labour market and is not directly measurable.
- In pursuing the operational objectives, the MPC shall:
- have regard to the efficiency and soundness of the financial system
- seek to avoid unnecessary instability in output, interest rates and the exchange rate
- discount events that have only transitory effects on inflation, setting policy with a medium-term orientation
- assess the effect of its monetary policy decisions on the government’s policy set out in subclause (3).
The government’s policy is to support more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers.
Hon Grant Robertson, Minister of Finance
Adrian Orr, Governor of the Reserve Bank of New Zealand
Download the Monetary Policy Remit
Public consultation – Monetary Policy Remit Review (2022)
The Reserve Bank of New Zealand Act 2021 requires the Bank to advise the Minister of Finance at least every five years on whether the Monetary Policy Committee’s Remit and Charter should be replaced, amended or remain in force. This regular process of review ensures that the operational monetary policy framework remains fit for purpose in a changing world.
We are required to provide advice to the Minister by November 2023. In preparation for this advice, we have begun reviewing the current Remit and will be consulting the public in two stages during 2022.
The first stage of public consultation will commence in June 2022. During the first consultation, we would like to hear from individuals and businesses about any changes that could better support the wellbeing of New Zealanders both now, and through whatever economic shocks and changes may come our way.
Later in 2022, we will consult on specific options for changes to the operational framework for monetary policy. A Review and Assessment of the operation of monetary policy in recent years will also be published.
The MPC is responsible for formulating monetary policy directed at achieving the economic objectives of price stability and support of maximum sustainable employment, as set out in Section 8 of the Act and in accordance with the remit.
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.
The charter was amended in March 2021 to account for the replacement remit, and came into force on 2 March 2021.
Monetary Policy Committee charter
Reserve Bank of New Zealand
This charter is issued and comes into effect on the day it is signed by both the Minister of Finance and an authorised representative of the Monetary Policy Committee (MPC).
The MPC is responsible for formulating monetary policy directed at achieving the economic objectives of price stability and support of maximum sustainable employment, as set out in Section 9 of the Reserve Bank of New Zealand Act 2021 (the Act) and in accordance with the remit. This 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.
a) MPC members are tasked to abide by the code of conduct and engage constructively with each other to achieve informed and timely monetary policy decisions. The MPC’s decision making is enhanced by embracing diverse opinions that reflect, for example, members’ unique personal and professional experiences and educational backgrounds. Members will respect each other’s contributions and embrace any difference in view as a benefit of a diverse committee.
b) The MPC will seek consensus in decision making. This is to ensure that the MPC engages in in-depth discussions and a true exchange of perspectives regarding monetary policy strategy—including consideration of the expected time taken to achieve operational objectives, any trade-offs that arise, and communication of this strategy—before specific decisions are taken.
c) When consensus cannot be reached, specific policy decisions will be determined by a simple majority vote as described in Clause 44 of Schedule 2 of the Act (which includes that the Governor, as chairperson, has a casting vote if required).
2) Transparency and accountability
a) The MPC will publish each monetary policy decision promptly on our website. The announced decision of the MPC will include a summary record of the MPC meeting that includes an overview of the economic outlook, the risks and policy options discussed, any material differences of view or judgement and an unattributed record of any vote taken.
b) On a quarterly basis, the announced decision will also be accompanied by a Monetary Policy Statement that will, in addition to the requirements set out in Section 15C of the Act:
(i) explain how the MPC has sought to meet the requirements of Section 2(2) in the remit
(ii) when inflation outcomes and/or expected inflation outcomes are outside of the target range, explain the reasons for this
(iii) explain how the current monetary policy decisions contribute to supporting maximum sustainable employment within the economy
c) If the MPC decides that we should intervene in financial markets, it shall also consider whether prompt publication of decision details would impede the achievement of the intervention's purpose. If so, the MPC may withhold such details until it deems that publishing them is no longer likely to create such impediment.
3) External communication
a) The MPC’s communications—both collective and individual—should contribute to the overall effectiveness of the monetary policy decision, the public’s understanding of monetary policy and the accountability of the MPC.
b) The Governor (or another member of the MPC with the Governor’s permission) will be the sole spokesperson for the official announcement of the decision.
c) In any public remarks regarding the MPC’s policy strategy and decision, members are to draw on the MPC’s official communications and on the Governor’s media conference remarks where appropriate. Any non-public remarks on monetary policy or the economic outlook must be consistent with the MPC’s official communications to avoid providing, or appear to be providing, new information to a subset of individuals. An MPC member who wishes to publicly express his or her view around the balance of risks and/or economic outlook may, but should do so with respect for other members and the MPC as a whole. Members are to consult with the MPC within a reasonable timeframe in advance of any public communication, refrain from characterising the individual views of other MPC members, and ensure such communication is publicly advised in advance and on the record (on our website) in real-time.
d) Given financial market sensitivities, MPC members must refrain from any public communications relevant to monetary policy following receipt of MPC briefing papers and prior to the decision being announced.
Hon Grant Robertson, Minister of Finance
Adrian Orr, Governor of the Reserve Bank of New Zealand
Download the Monetary Policy Committee Charter
Code of conduct – effective from 1 April 2019
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 adhere to. It was approved by our Board on 19 February 2019.
Monetary Policy Committee Code of Conduct
Effective from 1st April 2019
Approved by the Board of Directors 19th February 2019
This code applies to all members of the Monetary Policy Committee (MPC), that is, both internal and external members.
The code of conduct of the MPC sets out minimum standards of ethical and professional conduct that must be adhered to by members of the MPC.
Standards of Conduct
Members must formulate monetary policy consistent with the economic and operational objectives set out in the Reserve Bank of New Zealand Act (1989) (“the Act”) and the remit respectively, and consistent with the charter.
This code meets the requirements of the Act and is to be read subject to the MPC charter, which also includes expectations of members’ conduct, particularly placing constraints on members speaking in the public domain about the MPC’s activities.
Members must at all times act with honesty and integrity, in good faith, with respect for their colleagues and staff, and with reasonable care, diligence, and skill, having regard to the functions of the MPC.
Promoting participation and preparation
Members have an obligation to the MPC to:
- Carry out their responsibilities in an efficient and competent manner and to a high standard of performance.
- Contribute actively to and participate in MPC meetings, treating others’ contributions with respect at all times, and exchange ideas freely to promote excellence in the MPC’s deliberations.
- Develop, enhance and maintain expertise in the subject matter of the MPC.
- Continually seek to improve the effectiveness of their contribution.
- Attend all meetings, except where absence is unavoidable and approved by the chairperson of the MPC.
- Be adequately prepared to participate in meetings, including by reading any meeting papers supplied.
Conflict of Interest
Each member must:
- Act in the interests of the Bank, and not pursue his or her own interests at the expense of the Bank.
- Declare relevant interests through disclosure to the chairperson. The interests will be recorded in a register that will be shared with each member and administered by the MPC secretary.
There is a conflict of interest whenever a member’s duty or responsibility to the Bank could be affected by some other duty or loyalty (i.e. the member’s “interest”) that the member may have. Perception of a potential conflict of interest is as important a consideration as an actual conflict of interest.
In determining whether a conflict of interest exists, members should ask themselves: does their other interest or loyalty create an actual or perceived incentive for them to act in a way that may not be in the best interests of the Bank? Could it undermine public trust and confidence in a member or in the Bank? Would a reasonable outside observer conclude that a conflict of interest existed?
Members should err on the side of caution and treat the interest as a potential conflict of interest situation.
Disclosure of interests
If a member has an interest, they must disclose the nature of the interest, and the monetary value of the interest (if the monetary value of the interest cannot be quantified, a member must disclose the nature and extent of the interest) in the Interests Register, and to:
a) the MPC chairperson (i.e. the Governor, or Deputy Governor if the Governor is unavailable) or
b) the chairperson of the Board, if the MPC chairperson is unavailable, as soon as practicable after the member becomes aware that he or she is interested.
A member may make a standing disclosure (i.e. a disclosure of an interest with ongoing effect). A standing disclosure will continue in effect until the nature of the interest materially alters or the extent of the interest materially decreases.
A member is deemed to have an interest that must be disclosed if the member:
a) has a personal financial exposure to interest rate movements or foreign exchange trading, and may derive a financial benefit by changing that exposure from information being considered by the MPC ahead of a monetary policy decision (“monetary policy information”);
b) is the spouse, civil union partner, de facto partner, or is responsible for managing the affairs of a person who may derive a financial benefit from the monetary policy information;
c) is engaged in an employment, professional or consultancy capacity in a role for which monetary policy information is relevant (e.g. a treasury role, an FX trading role, or a role responsible for decisions about matters such as hedging interest rates).
Mortgages or other significant indebtedness
Members who have a financial exposure to interest rate movements, for example through home loans or other indebtedness influenced by decisions of the MPC, must record the exposure as an interest on the register. This includes the credit provider and the size of the indebtedness.
Members whose home loans (or other indebtedness influenced by the decisions of the MPC) are subject to fixed interest rates must record the term of the rate, i.e. when the fixed rate is scheduled to expire.
Consequences of failing to disclose an interest
The MPC chairperson must notify the Board of any failure by a member to disclose an interest, and of the actions affected, as soon as practicable after becoming aware of the failure.
Failure by a member to disclose an interest does not affect the validity of any decision taken by the MPC.
Management of conflict of interest
Having identified and disclosed an interest, the next step is to determine how it can be managed to avoid a conflict of interest. The management of some specific situations of conflict of interest are outlined below. Other situations of conflict of interest are managed as agreed with the chairperson.
Regular financial markets trading restricted
Members must not be personally or professionally involved, directly or indirectly, in regular trading in financial markets in which the Bank has, or might have, a significant influence. This includes domestic wholesale money, bond and foreign exchange markets, interest and exchange rate futures, options and swaps markets, instruments linked to such markets, equities listed on New Zealand exchanges, and prediction markets related to those issues in which the Bank might have a significant influence.
If prohibited interests are held by trusts in which the member has a beneficial interest, rather than by the member directly, the code will be breached if the member has material influence over the trust, such as ability to instruct the trustee as to investment choices. Where the trustee acts independently from the member, there is likely to be no conflict.
Fixed interest rates
A member must inform the chairperson if the fixed interest rate on his or her indebtedness is due to expire close to the time the MPC is scheduled to make a decision. The chairperson may exclude that member from the decision making at that time, or may, before the scheduled decision, require the member to satisfy the chairperson as to how his or her decision making on the fixed rate will not be influenced by monetary policy information.
A member must not place any trade in a FX instrument, purchase foreign exchange in an amount of $10,000 or more, fix an interest rate on any indebtedness, place or renew a term deposit in an amount of over $25,000, or purchase or sell any equity or debt instrument listed on a New Zealand exchange following receipt of MPC briefing papers and prior to the decision being announced, without first informing the chairperson. The chairperson may prohibit such a transaction until after the MPC meeting.
Consequences of a conflict of interest for MPC meetings
A member who has a conflict interest must not, unless otherwise agreed by the chairperson:
a) vote or participate in any discussion or decision of the MPC in relation to the matter;
b) be regarded for the purpose of forming a quorum for the part of any meeting of the MPC during which a discussion or decision relating to the matter occurs or is made.
Confidentiality of information and prohibition on use of inside information
In the course of discharging their responsibilities as members of the MPC, members will have access to confidential Bank information on economic and financial market conditions, and monetary policy assessments. All such information must be kept confidential and may not be disclosed, or made use of, or acted upon, except:
a) in the performance of the MPC's functions;
b) as required or permitted by law; or
c) to the Chair of the Board, if necessary to comply with the requirement to disclose interests under this code;
d) as agreed by the MPC (if the disclosure, use, or act will be unlikely to prejudice the MPC).
Members must never act or enable others to act on private information acquired in the course of their work.
Members may act on information in the public arena that may result in a gain or avoid a loss to them or any other person, but it will be their responsibility, if challenged, to demonstrate that their action was not motivated by information acquired in the course of their duties. Perceptions of conflicts are also to be avoided and, if there is a circumstance where there could be a perception of conflict because of the information in the public arena and information acquired in the course of their duties, members should seek advice from the chairperson before acting.
Other ethical standards
A member must not use his or her position for personal gain. He or she must not solicit or accept gifts, rewards, or benefits which might compromise, or be seen to compromise, his or her integrity or that of the Bank, or be seen by others as either an inducement or a reward that might place the member under an obligation to a third party.
Breaches of the code
[To be read in conjunction with RBNZ Act Schedule 3, Part 2, clause 19]
Failure to adhere to the code of conduct is grounds for removal as a member. The Board may investigate any allegation of failure to adhere to this code and may recommend removal to the Minister.
I acknowledge that I have read, understood and agree to adhere to the contents of this code.
Member name, signature and date
Approved, chairperson name and date
Policy distributed to: The Reserve Bank of New Zealand's Board of Directors
Download the Code of Conduct
The MPC’s risk appetite statement
The MPC faces a range of risks when formulating policy – some of which are unavoidable. The MPC has recently defined the specific risks it faces and has detailed a Risk Appetite Statement (RAS) for the first time to outline its appetite for each type of risk
Read the MPC's risk appetite statement (PDF 198KB)
The Reserve Bank of New Zealand Act 2021 underpins the Monetary Policy Committee’s (MPC) purpose, which is to promote the prosperity and well-being of New Zealanders, and contribute to a sustainable and productive economy. The MPC is mandated to do this by formulating monetary policy to achieve and maintain stability in the general level of prices over the medium term and support maximum sustainable employment, subject to secondary considerations. In doing so, the MPC is guided by the operational objectives set out in the MPC Remit. The MPC’s Charter further outlines the duties and responsibilities for the MPC in an operational sense.
Defining the risks
The MPC aims to maximise the operational objectives in the Remit while not taking undue risk. Undue risk can be defined as risks over and above those outlined in its RAS below. The purpose of the MPC’s RAS is to distinguish between necessary and undue risk. It summarises the MPC’s willingness to take on different types of risks to best fulfil its mandate.
The MPC’s willingness to take on some types of risk must be guided by its legal mandate. Some, such as the financial risk borne by the Reserve Bank as a consequence of the MPC’s monetary policy decisions, will also be heavily influenced by the risk preferences of the Reserve Bank.
The MPC’s risk appetite is categorised as high, medium or low in the RAS. Definitions for each level of risk can be found in table 1. The types of risk the MPC is exposed to (operational, legal, reputational and financial) are defined with examples in table 2.
Table 1: Defining the risk appetite level
|High appetite||The MPC readily accepts exposure to these risks, as they are central to the pursuit of its mandate. Managing them on an appropriate risk-reward basis is one of its core competencies|
|Medium appetite||The MPC accepts exposure to these risks, but on a controlled basis. These risks contribute to the achievement of its mandate but may come at a material cost, and are taken on a modest basis.|
|Low appetite||The MPC generally avoids these risks, as they have the potential to undermine its ability to achieve its mandate. When these risks arise, extra measures are taken to mitigate them.|
Table 2: Defining the risks faced by the MPC
|Risk||Definition and examples|
|Operational||The risk that disruptions to people, systems, and processes impact the MPC meeting and the effective formulation of monetary policy.
|Legal||The risk that the MPC does not fulfil its lawful mandate and is subject to legal challenge. Lawful mandate covers the Act, Remit, Charter, and Code of Conduct.
||The risk that damage to credibility results in a loss of stakeholder trust or confidence in monetary policy and/or the MPC.
|Financial||The MPC bears no financial risk as a committee, but has the responsibility to set policies which may cause significant financial risk to be borne by the Reserve Bank and the Crown.|
The MPC’s risk appetite statement
|Risk type||Risk appetite statement||Success indicators|
|Operational||The MPC has low appetite for directing the Reserve Bank to undertake policies that would exceed its operational capacity, or lead to a policy being launched without sufficient preparation.
The MPC has low appetite for making decisions without thorough deliberation and a sound understanding of the information available at the time. However, it operates in an inherently uncertain environment, therefore the MPC necessarily has a high tolerance for setting policy under uncertainty.
The MPC has low appetite for making a decision without all members contributing, but is flexible with respect to how members come together to deliberate.
The MPC has medium appetite to test new internal systems and processes, seeking continuous improvement in the way it operates.
|Monetary policy is formulated in line with the capacity of the Reserve Bank.
The MPC is forward-looking regarding potential policy tools and directs the Reserve Bank to prepare its operational needs in line with expected future policy needs.
The MPC can meet and formulate policy as scheduled.
|Legal||The MPC has very low appetite for legal challenge, and no appetite for acting illegally.||Monetary policy decisions are explained and justified in the Monetary Policy Statement.
Record of meeting reflects consideration of a broad range of information, robust discussion, and acknowledgement of secondary considerations.
Members continuously seek to reach consensus.
|Reputational||The MPC recognises the importance of credibility for effective monetary policy. It has low appetite for policies or decisions that could cause inflation expectations to become unanchored.
The MPC has moderate appetite for external criticism and challenge, and will respond as necessary to maintain its legal licence to operate.
The MPC has high appetite to learn from its international peers and to design and test new or novel policies to respond to uncharted economic conditions.
|Medium-to-long-term inflation expectations are anchored near the target midpoint.
Market rates (e.g. OIS) move as intended when implementing monetary policy.
Inflation and employment are near, or forecast to converge towards, their respective targets.
|Financial||The MPC bears no financial risk as a committee, but has the responsibility to set policies which may cause significant financial risk to be borne by the Reserve Bank. For this reason, the MPC is guided by the Reserve Bank’s internal risk appetite and institutional arrangements in these areas.|
|Operational||✔||New systems and processes|
|Reputational||✔||External challenge||Learning from international peers and innovative or novel policy|
Note: A tick denotes the default risk tolerance level, with exceptions listed in italics. The MPC has not established an appetite for financial risk, as it does not bear any financial risk as a committee.