What is monetary policy?
By influencing the cost of borrowing, we can influence the economy. We call our work to influence interest rates and the amount of money in the economy monetary policy.
Our main monetary policy tool is the official cash rate (OCR), which is the rate we charge banks to borrow money from us.
What we use monetary policy for
We use monetary policy to achieve the Government's target of keeping inflation between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint.
The Government and the Minister of Finance create the goals and broader framework for monetary policy. The Minister does this by issuing a remit for the Monetary Policy Committee.
Key changes to our remit
In December 2023, the Minister of Finance changed our Remit to remove maximum sustainable employment and focus on maintaining low and stable inflation.
How we make monetary policy decisions
Our Monetary Policy Committee (MPC) decides what monetary policy action to take. They do this by using current conditions and forecasts to inform the OCR, basing decisions on the best information and data available at the time.
But, it can take time for monetary policy to have its full effect on the economy.
We explain the reasons behind our monetary policy decisions in our Monetary Policy Statements and Monetary Policy Reviews.
See a timeline of our monetary policy decisions