Monetary policy that promotes low and stable inflation enhances economic and social outcomes. This Bill seeks to ensure that the Reserve Bank of New Zealand (the Reserve Bank), in making monetary policy decisions, is principally focused on targeting low and stable inflation.

The Reserve Bank of New Zealand Act 2021 (the principal Act) gives the Reserve Bank dual economic objectives of—

achieving and maintaining stability in the general level of prices over the medium term; and
supporting maximum sustainable employment.

At present, the Reserve Bank, acting through its monetary policy committee, must formulate monetary policy in a manner consistent with both of the economic objectives.

This Bill removes the maximum sustainable employment objective from the economic objectives in the principal Act and provides the Reserve Bank with a single economic objective of achieving and maintaining price stability.

This change will provide clarity to the Reserve Bank, financial markets, and the public as to how monetary policy decisions should, and will, be formulated. It is possible that the clear signal of the prioritisation of price stability will positively influence expectations of future rates of inflation. Reducing inflation expectations is an effective way to dampen inflationary pressure, as heightened or unanchored inflation expectations require a more robust central bank response to return inflation to its target.

Departmental disclosure statement

The Treasury is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

A copy of the statement can be found at http://legislation.govt.nz/disclosure.aspx?type=bill&subtype=government&year=2023&no=2

Regulatory impact statement

The Treasury produced a regulatory impact statement on 30 November 2023 to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

A copy of this regulatory impact statement can be found at https://treasury.govt.nz/publications/informationreleases/ris

Clause by clause analysis

Clause 1 is the Title clause.

Clause 2 provides that the Bill comes into force on the day after Royal assent.

Clause 3 provides that the Bill amends the Reserve Bank of New Zealand Act 2021 (the principal Act).

Part 1Amendment to Reserve Bank of New Zealand’s objectives

Clause 4 amends the economic objectives of the Reserve Bank of New Zealand (the Reserve Bank). It removes the Reserve Bank’s objective of supporting maximum sustainable employment. This leaves the Reserve Bank with only 1 economic objective: achieving and maintaining stability in the general level of prices over the medium term.

Part 2Related amendments

Part 2 makes consequential amendments to the principal Act to reflect there being only 1 economic objective. These amendments mainly involve replacing references to economic objectives with economic objective. In addition,—

clause 8 amends section 117 of the principal Act to remove a reference to the Reserve Bank’s objective of supporting maximum sustainable employment; and
clause 10(2) amends section 123 of the principal Act to make clear that a framework for weighting economic objectives is relevant only if an Order in Council under section 125 of the principal Act provides for more than 1 economic objective; and
clause 11 amends section 125 of the principal Act, which provides for an Order in Council to set a different economic objective or objectives for the Reserve Bank. Section 125(2) currently states that the order may provide either that only 1 of the objectives specified in section 9(1)(a) of the principal Act applies or that 1 or more new objectives apply (in addition to or instead of either or both of the specified economic objectives). Clause 11(1) amends this to reflect that there is only 1 economic objective specified in section 9(1)(a).

Hon Nicola Willis

Reserve Bank of New Zealand (Economic Objective) Amendment Bill

Government Bill

2—1

The Parliament of New Zealand enacts as follows:

1 Title

This Act is the Reserve Bank of New Zealand (Economic Objective) Amendment Act 2023.

2 Commencement

This Act comes into force on the day after Royal assent.

3 Principal Act

This Act amends the Reserve Bank of New Zealand Act 2021.

Part 1 Amendment to Reserve Bank of New Zealand’s objectives

4 Section 9 amended (Bank’s objectives)

Replace section 9(1)(a) and the heading above section 9(1)(a) with:

Economic objective

(a)

the economic objective of achieving and maintaining stability in the general level of prices over the medium term; and

Part 2 Related amendments

5 Section 4 amended (Overview)

In section 4(3)(a) and (4)(a), replace “economic objectives” with “economic objective”.

6 Section 10 amended (Bank’s functions)

In section 10(1)(a)(i), replace “objectives” with “objective”.

7 Section 116 amended (Central bank functions)

In section 116(a), replace “objectives” with “objective”.

8 Section 117 amended (Function to formulate monetary policy through MPC)

Replace section 117(1) with:

(1)

The Bank, acting through the MPC, has the function of formulating a monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices over the medium term.

9 Section 118 amended (MPC must formulate monetary policy in manner consistent with economic objectives and MPC remit)

(1)

In the heading to section 118, replace “objectives” with “objective”.

(2)

In section 118(a), replace “objectives” with “objective”.

10 Section 123 amended (Contents of MPC remit)

(1)

In section 123, replace “an economic objective” with “the economic objective” in each place.

(2)

In section 123(2)(b), after “economic objectives”, insert “(if an Order in Council in force under section 125 provides for more than 1 economic objective)”.

11 Section 125 amended (Order providing for different economic objective or objectives)

(1)

Replace section 125(2) with:

(2)

The economic objective or objectives may be in addition to or instead of the economic objective specified in section 9(1)(a).

(2)

In section 125(3)(b), replace “either or both of the economic objectives” with “the economic objective”.

12 Section 136 amended (Effect of directions on operational objectives)

In section 136(1), replace “economic objectives” with “economic objective”.

13 Section 138 amended (Effect of directions on monetary policy)

In section 138(1), replace “objectives” with “objective”.

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Reserve Bank of New Zealand (Economic Objective) Amendment Bill