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MNI BRIEF: RBNZ Backs Inflation Target In Remit Review

(MNI) Perth

The Reserve Bank of New Zealand has recommended that its remit continue to be based on a flexible inflation targeting framework, as it opened a second consultation on possible changes to its remit. The RBNZ said in the consultation paper that retaining the 1-3% inflation target, with a focus on the 2% midpoint, strikes a good balance between the costs and benefits of positive inflation, adding that the Consumer Price Index is the "most suitable" price measure for the inflation target. It said the inflation targeting framework was "well understood and credible".

The consultation again recommended that consideration of house price sustainability be removed from its remit, while the requirement to "discount transitory events" was viewed as redundant given its flexible inflation targeting framework. Additionally, the clause relating to financial stability could be better aligned with the legislation governing the RBNZ.

The second consultation comes after a review of its policymaking over the past five years showed it was "largely warranted", but it should have tightened policy earlier in 2021. (See MNI BRIEF: RBNZ Should Have Tightened Earlier - Bank Review)

Robert covers RBA and RBNZ policy and the economy for MNI in Australia.
Robert covers RBA and RBNZ policy and the economy for MNI in Australia.

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