Reserve Bank Bulletin - Evaluating monetary policy

Release date
02 November 2015

The Reserve Bank today published a Bulletin article, ‘Evaluating monetary policy’. It outlines a conceptual framework for evaluating monetary policy, based on the principles of flexible inflation targeting. A box in the article illustrates how this framework might be used to assess monetary policy over recent years, during which inflation has proven weaker than expected.

“Monetary policy is a powerful tool and it is important that central banks are held accountable for their conduct of monetary policy, ”Assistant Governor Dr John McDermott said.

“The Reserve Bank’s performance should be benchmarked to the Reserve Bank Act and the Policy Targets Agreement.

“These instruct the Bank to operate monetary policy so as to achieve price stability over the medium term. Actual inflation can temporarily deviate from this medium-term target, meaning that it is not sufficient to look at inflation outcomes alone when assessing the conduct of monetary policy.

“Evaluation of current and recent policy decisions should also review whether relevant information and analysis that was available at the time supported the policy decisions, and whether deliberations were well considered. Once inflation outcomes are known and an ex-post assessment can be conducted, how the Bank responded to new information and forecast errors should be considered alongside the inflation outcomes themselves.

“Given the uncertainties involved, it is not expected that the Reserve Bank will always get its forecasts right. But it is expected that the Bank will make full use of all relevant information, and learn from new information and forecast errors as these come to light.”

Media Contact:

Mike Hannah, Head of Communications,

Ph 04 471 3671, 021 497 418, mike.hannah@rbnz.govt.nz