The Reserve Bank of New Zealand (RBNZ) has published an update detailing its progress on recommendations from the review of monetary policy conducted between 2017 and 2022. This announcement coincides with an interim assessment of the recent monetary policy tightening cycle. The 2022 Review and Assessment of the Formulation and Implementation of Monetary Policy (RAFIMP) proposed nine recommendations aimed at enhancing the ability of the Monetary Policy Committee (MPC) to achieve its objectives amidst increased uncertainty and complex economic challenges.
Progress and Next Steps in Monetary Policy
The RBNZ has also released new research evaluating the MPC’s response to inflation rates above target from 2021 to 2024. This initiative is part of the continuous evaluation process that contributes to the next full RAFIMP review scheduled for 2027. The upcoming RAFIMP will formally outline lessons learned and identify areas that require further improvement. The documents released today offer interim reflections on the MPC’s effectiveness during this period.
According to the update, the MPC’s strategy successfully reduced inflation from its peak in 2022, bringing it back within the target range of 1 to 3% by September 2024. Maintaining longer-term inflation expectations near the target midpoint has been essential for ensuring medium-term price stability. In retrospect, Mr. Conway acknowledged that an earlier or more aggressive tightening approach could have curbed inflation more swiftly. He noted, “But this would have been difficult given the data available at the time and could have conflicted with the MPC’s mandate back then, which included maintaining maximum sustainable employment.”
Despite facing considerable data uncertainty, the MPC relied on the best available information to guide its decisions. The accuracy of economic forecasts has improved significantly as the disruptions caused by the COVID-19 pandemic have subsided. While the communication of the MPC’s strategy was generally clear, there remains room for enhancement, particularly regarding how the forward Official Cash Rate (OCR) track is presented.
Ongoing Assessment and Future Goals
Overall, the MPC effectively navigated a highly uncertain economic environment, successfully steering inflation back to the target range as anticipated. “We are consistently assessing our performance in maintaining low and stable inflation, which is the best contribution we can make to improving New Zealand’s long-run economic performance,” stated Mr. Conway. He emphasized that the work released today serves as a useful interim update ahead of the comprehensive review set for 2027.
As the RBNZ moves forward, it remains committed to refining its monetary policy to adapt to emerging economic realities, ensuring that it can continue to meet its objectives in a complex and evolving landscape. The insights gained from both the interim assessments and the forthcoming RAFIMP will play a crucial role in shaping effective monetary strategies for the future.
