Following consideration of submissions and discussions with a number of interested parties, we have decided that there are risks that might not be outweighed by benefits. Accordingly, at least for the foreseeable future, we will be staying with the current operating system. Some relatively minor modifications to the details of that system might be considered in due course, but the essential character of the current system will not be affected. Under headings that reflect where most of the discussion was focused, this paper isolates the key issues that were addressed in the review and explains the reasons for the resulting decision. Signalling, in the New Zealand monetary policy context, refers to the Reserve Bank providing information on the intended state of monetary conditions, both now and potentially also into the future.
All central banks use signalling.
Financial markets cannot therefore read directly from our operations the state of monetary conditions that the Bank desires. We believe that both the exchange rate and interest rates matter for transmitting monetary policy actions to the economy. From time to time we have experienced problems with signalling, with monetary conditions moving in a way that was not intended when a Bank statement was made, and claims of lack of clarity. First, it would have involved targeting directly a component of monetary conditions in our operations. Second, in doing so it would have provided quantitative signals.