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Prepared by Yu Ching Wong (APD). The chapter benefited from valuable comments by the Treasury of New Zealand and participants at a joint Treasury and Reserve Bank of New Zealand seminar.
Under the ongoing Phase Two Review of the RBNZ Act, the Minister of Finance has made an in-principle decision to replace the RBNZ’s existing ‘soundness and ‘efficiency’ objective that applies in relation to its prudential functions with an objective to “protect and enhance the stability of New Zealand’s financial system.” This objective is subject to public consultation and may subsequently change.
New Zealand’s monetary policy framework is set out in the RBNZ Act and includes three secondary instruments, the Remit, Charter, and Code of Conduct, that are established with the Act. Two other secondary considerations (set through the Remit) are to avoid unnecessary instability in output, interest rates, and the exchange rate; and to discount events that have only transitory effects on inflation, thereby setting policy with a medium-term orientation (RBNZ, 2019).
Similarly, the desirability for coordination also exist between monetary policy and fiscal policy. For example, if low interest rates are undesirable, expansionary fiscal policy could enable higher interest rates while also allowing monetary policy to be consistent with its price stability and employment mandate.
Other secondary considerations are to (i) seek to avoid unnecessary instability in output, interest rates, and the exchange rate; and (ii) discount events that have only temporary effects on inflation, setting policy with a medium-term orientation.
CoFR only considers financial regulation. For it to consider monetary, financial and fiscal policy, its remit and membership would need to change.