27 Jun 2023

Government tweaks interest rate rules for Reserve Bank

5:18 pm on 27 June 2023
Deputy leader of Labour Party Grant Robertson

Finance Minister Grant Robertson has left the charter and remit for the Reserve Bank's Monetary Policy Committee largely unchanged. Photo: RNZ / Angus Dreaver

The government has tinkered with the rules which the Reserve Bank needs to comply with when setting interest rates.

Finance Minister Grant Robertson has left the charter and remit for the central bank's Monetary Policy Committee (MPC) largely unchanged, but has given a touch more flexibility when assessing inflation.

The two primary instructions remain - getting inflation within a 1-to-3 percent target band, and to support maximum sustainable employment.

However, where the MPS was previously expected to "keep" inflation in the target band over the medium term, it now must "achieve and maintain" inflation in the band.

"I have made only minimal changes to the remit as the current monetary policy framework as I believe it remains fit for purpose," Robertson said.

He said the MPC's remit had also been clarified to allow it to discount temporary spikes in inflation.

The committee will still have to think about how its decisions affect the government's aim for sustainable house prices, the link between setting interest rates and government spending, and commenting on how its decisions have taken account of financial risks.

RBNZ board chair Neil Quigley said: "This largely represents a continuation of the current monetary policy regime, with some changes that support more clarity for the monetary policy objectives."

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