Background
The role of the Monetary Policy Committee Remit
Monetary policy contributes to public welfare by reducing cyclical variations in employment and economic activity while maintaining price stability over the medium term.
The Monetary Policy Committee (MPC) is responsible for making monetary policy decisions, such as the level of the Official Cash Rate (OCR).
The MPC Remit sets objectives for what the MPC should focus on when setting monetary policy. The Remit does this by setting targets for the MPC and providing guidance on how the MPC should set out to achieve these targets, including what other factors the MPC should take into account in its decisions.
The MPC Remit is also accompanied by the MPC Charter, which defines the decision-making process and sets requirements on the MPC that support transparency and accountability.
What does the Act say?
The Reserve Bank of New Zealand Act 2021 (the Act) specifies the MPC's economic objectives of achieving and maintaining price stability.
Under the Act, every 5 years, we are required to advise the Minister of Finance about possible changes to the Remit.
In the process of developing advice, we must:
- consult the MPC
- ask members of the public for their views
- consult the Minister on the scope of the remit advice.
Reserve Bank of New Zealand Act 2021 | legislation.govt.nz
Role of the Minister of Finance
The Minister of Finance must have regard to the advice in deciding whether the remit should be amended, replaced, or remain in force without any changes.
The Minister of Finance and the MPC are also required to consider whether the Charter should be amended.
About the 2022/2023 Remit Review
We completed the first Remit Review between 2022 and 2023. The review included:
- research and analysis
- 2 public consultations
- public surveys
- public discussion workshops.
The review also considered whether we should amend our Charter.
The first public consultation was open from 1 June 2022 until 15 July 2022. We used public feedback to inform a second consultation paper which was published on 20 November 2022. This paper proposed a range of options and informed a second public consultation which was open until 27 January 2023.
Our research and analysis, feedback from both public consultations, the public surveys, and the public discussion workshops fed into advice that we provided to the Minister in April 2023.
The current Remit and Charter were informed by this advice.
Advice documents and changes to the Remit
On 27 June 2023, the Minister issued a new remit and the MPC and the Minister agreed to a new Charter. Both these documents came into effect on 28 June 2023.
We also published our advice to the Minister, and accompanying documents, following the notification of the new Remit through the Gazette. There are no major changes to the operational objectives through the June 2023 Remit. There are several smaller changes which have implications on how the Remit is interpreted.
Subsequently, the Reserve Bank Act was amended to focus the Reserve Bank on solely targeting price stability. A new Remit and Charter were issued in December 2023 to reflect this change.
Key changes to the June 2023 Remit and Charter
- Redraft of the context section to better reflect the role of monetary policy in supporting wider economic objectives.
- Redraft of the requirement for the MPC to discount effects that have only transitory effects on inflation and moved this requirement from a separate clause into clause 1(i).
- Removal of the requirement for the MPC to assess the impact of monetary policy on the Government’s policy of house price sustainability from the Remit objectives. This requirement is now reflected in the Charter.
- Amendment of clause 2(i) to align with the language in the Reserve Bank of New Zealand Act 2021.
- Amendment to refer to the 2021 Act, instead of the 1989 Act.
- Clarified the requirements on individual MPC members when they communicate externally.
- Addition of the requirement to explain the MPC’s assessment of the effects of its decision on the Government’s objective of supporting more sustainable house prices.
- Addition of the requirement to explain the key considerations in choosing monetary policy tools when the MPC’s decision materially increasing our exposure to financial risk.
- Addition of the requirement for the MPC to seek to understand material interactions between fiscal and monetary policy, and support information sharing between the Reserve Bank and The Treasury.
- Amendment to refer to the 2021 Act, instead of the 1989 Act.
The first public consultation document (PDF, 2.82MB)
Summary of submissions for the first public consultation (PDF, 581KB)
Background paper on the measurement of price stability (PDF, 1.11MB)
Background paper on the optimal level of the inflation target (PDF, 1.15MB)
The second public consultation document (PDF, 7.80MB)
Summary of submissions from the second public consultation (PDF, 883KB)
Memorandum for the Minister - Remit Review (PDF, 519KB)
Summary of MPC discussions and positions on the Remit and Charter (PDF, 973KB)