The Monetary Policy Remit and 2% inflation – Reserve Bank of New Zealand – Te Pūtea Matua

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The past few years have seen the emergence of persistent core inflation off the back of the COVID-19 pandemic. Tackling these persistent inflationary pressures and bringing levels of ‘core’ inflation in line with our 1 to 3% target is an important part of bringing inflation back down to the 2% midpoint.

In this context, a flexible approach to inflation targeting, with a medium-term focus, remains appropriate. This provides the Monetary Policy Committee with the ability to weigh different considerations when responding to shocks to the economy.

The Reserve Bank believes that the current 2% mid-point inflation target remains appropriate for New Zealand.

“2% continues to strike the right balance between the costs and benefits of inflation,” Mr Orr says. “A focus on 2% appears to be consistent with an ‘optimal’ level of inflation.”

“In the long-term, an inflation target centred on 2% is more likely to mean continued growth and steady jobs, supporting the prosperity and wellbeing of everyone,” he says.

While inflation is a top priority, as a full-service central bank, we need to achieve all our objectives across our wide mandate – monetary policy, financial stability, cash operations, and financial markets infrastructure – to ensure long-term economic prosperity for New Zealanders, he says.

Some areas at the top of the list are enhancing monetary and fiscal policy coordination, implementing the Deposit Takers Act, including the Depositor Compensation Scheme, and introducing Debt-to-Income (DTI) restrictions aimed at complementing other tools we use to support financial stability.

More information

Read the November 2023 Monetary Policy Statement

We will publish our February Monetary Policy Statement at 2pm on 28 February 2024.

Read the speech by Chief Economist Paul Conway The importance of quality research and data (delivered in January 2024)

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