Policy Targets Agreement New Zealand

The new EPZ also requires that monetary policy be implemented in a way that contributes to the promotion of maximum sustainable employment in the economy. Monetary policy is an important consideration for a fixed-rate investor for several reasons. It should be noted that, unlike a number of other central banks whose monetary interest rates have fallen from almost zero (or lower) and which cannot lower interest rates further to further ease monetary policy, the official cash reserve bank rate remains at a level (1.75%) monetary policy if conditions require it. In a speech in early March 2017, the governor of the reserve bank stated that “risks associated with future OCR movements are considered to be weighted in the same way.” [31] Chart 1 shows the OCR at a rate of 4.5% since its introduction in 1999. The OCR peaked at 8.25 per cent between July 2007 and July 2008, before falling to 2.5 per cent from April 2009 to June 2010 in response to the global financial crisis. The reserve bank then gradually increased the OCR to 3.5 per cent in July 2014, before beginning further monetary easing from June 2015. Currently, the OCR is at its lowest level (1.75%). [13] 23. The new formulation of the ATP, which explicitly links monetary policy to economic growth, employment and development, reflects the new government`s desire for a clearer and more visible statement that price stability is the best contribution monetary policy can make to economic growth and employment, not just an end in itself. In recent years, low annual inflation has not only been a New Zealand phenomenon. Excess resource capacity and low growth in industrialized countries since the global financial crisis have led to low inflation rates in a number of countries.

Due to low annual inflation, central banks have loosened monetary policy interest rates to record highs. Only recently has the US Federal Reserve begun tightening monetary policy, while other central banks continue their quantitative easing policies. Quantitative easing occurs when the central bank buys government bonds and private bonds, thereby increasing the money supply within an economy (the bank often pays for purchases by creating more electronic cash). Former bondholders then have money to invest elsewhere in the economy. The result is lower interest rates and higher asset prices (e.g. B share price). Rising asset prices increase households` sense of prosperity and encourage spending. The evolution of the reserve bank`s political objectives is presented in the table below.

As part of today`s mission, the Reserve Bank`s operational objectives for monetary policy are as follows: during these changes, inflation was the priority objective of the PTA, as was the case in the Reserve Bank of New Zealand Act (1989). But it was not the only variable of economic interest. Employment and output variability – key indicators of the real economy – was taken into account when defining monetary policy. The final ATP, signed in 2018, added an additional political objective: that the reserve bank contribute to the promotion of maximum sustainable employment. This should be pursued in parallel with the inflation target and served as the basis for the first mission. “Currently, the governor of the reserve bank has the exclusive power to make monetary policy decisions under the law. While clear institutional responsibility was important in establishing the credibility of the inflation target system when the legislation was introduced, the benefits of the Committee`s decision-making structures have been more recognized in recent decades,” said Grant Robertson.

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