Reserve Bank of New Zealand reports progress on nine monetary policy review recommendations and publishes interim assessment of the 2021–24 tightening cycle

The Reserve Bank of New Zealand published an update on its implementation of the nine recommendations from its 2022 Review and Assessment of the Formulation and Implementation of Monetary Policy covering 2017–2022, alongside an interim review of the Monetary Policy Committee’s (MPC’s) response to above-target inflation over 2021–2024. It reports strong progress in strengthening the monetary policy framework and finds that the MPC’s strategy reduced inflation from its 2022 peak to within the 1 to 3% target band by September 2024, while keeping longer-term inflation expectations near the target midpoint. Workstreams linked to the 2022 review include expanded use of high-frequency data, new tools to estimate neutral interest rates, and enhanced scenario analysis, alongside further research on supply shocks and structural drivers of inflation and improved understanding of price-setting and inflation-expectations dynamics during volatile conditions. The interim tightening-cycle review notes that, in hindsight, earlier or more aggressive tightening might have reduced inflation sooner, but that this would have been difficult given data uncertainty at the time and could have conflicted with the MPC’s mandate then, which included maintaining maximum sustainable employment; it also points to scope to improve how the forward Official Cash Rate track is communicated. The newly released papers are intended as interim reflections and will be inputs to the next full RAFIMP review scheduled for 2027, which is expected to set out formal lessons learned and further areas for improvement.