in service to society new zealand ’ s revised monetary policy framework and the imperative for institutional change a speech delivered at wharewaka function centre, wellington, new zealand on 29 march 2019 by adrian orr, governor written with omar aziz, economic advisor 2 the terrace, po box 2498, wellington 6140, new zealand telephone 64 4 472 2029 online at www. rbnz. govt. nz introduction tena koutou katoa. thank you for joining us today to discuss new zealand ’ s new monetary policy framework. the recent amendment to the reserve bank ’ s legislation sets up a monetary policy committee that is responsible for a new dual mandate of keeping consumer price inflation low and stable, and supporting maximum sustainable employment. the committee ’ s deliberation process will ensure that all decisions benefit from a diverse range of views, and offer greater transparency and accountability to monetary policy decisionmaking. before i outline the features of the new framework and its underlying principles, i would like to paint the backdrop to this institutional change. the business of central banking is evolving as circumstances change. some of the change is favourable, some is confronting. on the favourable side, we have low and stable inflation, low unemployment, and broad financial stability. this advantageous position must never be taken for granted. i thank all of the wise people – past and present – who have worked hard on creating the current environment. on the challenging side, in addition to maintaining the status quo, we have new and significant long - term economic challenges among which central banks operate. for example, in the financial system alone, we must deal with global economic inter - dependence, dominant financial institutions, significant debt burdens, technological change that challenges employment and financial inclusion norms, climate change, and much more. the list is long and the challenges have intergenerational implications. i spoke about many of these issues in a recent speech about the dangers of short - term thinking. 1 the refreshed reserve bank act and monetary policy practices, and the ongoing reviews of our legislation, position us to adapt to these changes. the aim is to ensure that the reserve bank can continue to achieve its fundamental purpose, which is “ to promote the prosperity and well - being of new zealanders, and contribute to a sustainable and productive economy ”. 2 institutions, legitimacy & identity let ’ s take a step back and talk about the backdrop to recent and pending changes to the reserve bank ’ s frameworks. the key role of a public institution is

/ refit - - review - of - flexible - inflation - targeting / and https : / / www. regjeringen. no / en / aktuelt / report - of - the - law - commission - on - the - act - relating - to - norgesbank - and - the - monetary - system / id2558679 / page 5 of 11 “ strategies, tools and communication practices ” that service its dual mandate. 12 and, the bank of canada is well into a regular five - yearly review of its “ inflation control agreement ”. 13 14 beyond this, calls to build further resilience in the financial system – especially in its interface with the wider economy – is an emerging theme on the international agenda. 15 the first review of the reserve bank of new zealand act 1989 to be completed was that of monetary policy. now enacted in law, new zealand ’ s new monetary policy framework is being formally introduced on 1 april 2019. i will now elaborate on the specifics of the revised monetary policy framework with reference to its history, locating it in the wider context of other external policy reviews and consultation processes that the bank is involved in. reserve bank act 1989 : objectives & accountability the reserve bank act of 1989 was introduced at a time when there was great uncertainty about economic conditions in new zealand. in the 1970s and 80s, our country, like many others, had adopted a variety of strategies to deal with high and volatile inflation ; none were successful. the 1989 act gave the reserve bank operational independence to achieve the objective of price stability. a single decision maker model was introduced making the governor responsible and singularly accountable for the substance of monetary policy. the policy targets agreement ( pta ) between the minister of finance and the governor set explicit goals for monetary policy to pursue. 16 an agreement between a single decision maker and the government provided sufficient flexibility to make the appropriate revisions to the inflation target as we adjusted from high to low inflation. over time, there have been several revisions to the inflation target, settling in recent times on a band of 1 – 3 percent with a focus on the 2 percent midpoint. 17 12 federal reserve to review strategies, tools, and communication practices it uses to pursue its mandate of maximum employment and price stability, press release, 15 november 2018, ( https : / / www. federalreserve. gov / newsevents / pressreleases / monetary20181115a. htm ) wilkins, c., a.