Reserve Bank of New Zealand (RBNZ)

The Reserve Bank of New Zealand (RBNZ) is New Zealand's central bank. It was established in 1934 and has been wholly owned by the government of New Zealand since 1936.

The Reserve Bank is a ‘full-service’ central bank, meaning that its functions and activities cover the complete range of normal central banking roles. These include implementing monetary policy, financial system oversight, financial markets activities, clearing and settlement services, banking system liquidity management and oversight, and providing currency to the public. Not many central banks around the world offer services in all these areas.

The full-service facilities of the Reserve Bank reflect its three main functions

  • operating monetary policy to maintain price stability
  • promoting the maintenance of a sound and efficient financial system; and
  • meeting the currency needs of the public.

These functions are specified in the Reserve Bank Act 1989, which also gives the Reserve Bank statutory independence to carry them out.

Monetary Policy

New Zealand’s monetary policy framework is conventional by current international standards. It is designed around an overall goal of price stability, laid out in the Reserve Bank Act 1989 and defined and specified by a Policy Targets Agreement. At the time of writing, this requires the Bank to keep CPI inflation between 1 and 3 percent, on average, over the medium term. The target range, on average, of 1 to 3 percent is broadly regarded as ‘price stability’, in part because the CPI measurement reflects an average "basket" of goods and services purchased by a particular income group, and does not include some high-priced luxury items which, typically, fall in value as they become common.

The policy target also has a floor to it, meaning that the bank must be mindful of the flip-side of inflation – deflation.

This is when prices fall and money gains value. Both inflation and deflation have different effects on an economy and both, if sustained or if running at high levels, can be damaging. Deflation can be particularly so, because money gains value merely by being kept; there is no incentive to invest. For this reason, the goal of monetary policy is price stability – the target agreement has a floor as well as a ceiling.

However, in New Zealand – as in much of the western world – inflation has been historically more common. At times, and particularly between the late 1960s and late 1980s, New Zealand’s inflation has been quite high. On average, purchasing power fell by more than 90 percent from the late 1960s to the early 1990s, when the first statutory price-stability target was achieved. The Reserve Bank publishes a Monetary Policy Statement, which outlines recent economic events and how the Bank has responded to them. The Reserve Bank is legally required to publish this document twice a year as part of its accountability to the government. However, the Reserve Bank actually publishes it four times a year because it is useful to communicate with the financial markets and the public its view about the economy and so manage expectations about future inflation.

The website of the Reserve Bank of New Zealand (RBNZ) is