POLICY TARGETS AGREEMENT
This agreement between the Treasurer and the Governor of the Reserve Bank of New Zealand (the Bank) is made under
sections 9 (1) and 9(4) of the Reserve Bank of New Zealand Act 1989 (the Act), and shall apply for the balance of the
Governor’s present term, expiring on 31 August 2003. It replaces that signed on 15 December 1997.
In terms of section 9 of the Act, the Treasurer and the Governor agree as follows:
1. Price stability
Consistent with section 8 of the Act and with the provisions of this agreement, the Bank shall formulate and implement
monetary policy with the intention of maintaining a stable general level of prices, so that monetary policy can make its
maximum contribution to sustainable economic growth, employment and development opportunities within the New Zealand
2. Policy target
a) In pursuing the objective of a stable general level of prices, the Bank shall monitor prices as measured by a range
of price indices. The price stability target will be defined in terms of the All Groups Consumers Price Index (CPI), as
published by Statistics New Zealand.
b) For the purpose of this agreement, the policy target shall be 12-monthly increases in the CPI of between 0 and 3 per
3. Unusual events
a) There is a range of events that can have a significant temporary impact on inflation as measured by the CPI, and mask
the underlying trend in prices which is the proper focus of monetary policy. These events may even lead to inflation
outcomes outside the target range. Such disturbances include, for example, shifts in the aggregate price level as a
result of exceptional movements in the prices of commodities traded in world markets, changes in indirect taxes,
significant government policy changes that directly affect prices, or a natural disaster affecting a major part of the
b) When disturbances of the kind described in clause 3 (a) arise, the Bank shall react in a manner which prevents
general inflationary pressures emerging.
4. Implementation and accountability
a) The Bank shall constantly and diligently strive to meet the policy target established by this agreement.
b) It is acknowledged that, on occasions, there will be inflation outcomes outside the target range. On those occasions,
or when such occasions are projected, the Bank shall explain in Policy Statements made under section 15 of the Act why
such outcomes have occurred, or are projected to occur, and what measures it has taken, or proposes to take, to ensure
that inflation comes back within that range.
c) In pursuing its price stability objective, the Bank shall implement monetary policy in a sustainable, consistent and
transparent manner and shall seek to avoid unnecessary instability in output, interest rates and the exchange rate.
d) The Bank shall be fully accountable for its judgments and actions in implementing monetary policy.
Hon Michael Cullen
Donald T Brash
Reserve Bank of New Zealand
DATED at Wellington, this 16th day of December 1999