We have published an update on our progress in responding to recommendations from our review of monetary policy over the 2017 to 2022 period. This is being released alongside an interim review of the recent monetary policy tightening cycle.
The 2022 Review and Assessment of the Formulation and Implementation of Monetary Policy (RAFIMP) proposed 9 recommendations aimed at improving the Monetary Policy Committee's (MPC's) ability to achieve its objectives in an environment of heightened uncertainty and more complex economic shocks.
First steps towards the next monetary policy review
We have also released new work reviewing the MPC's response to above-target inflation from 2021 to 2024. This work is part of our continuous evaluation and improvement of monetary policy and will be an input into the next full RAFIMP review in 2027. The 2027 RAFIMP will provide a formal set of lessons learned and areas for improvement. The papers released today offer some interim reflections.
The MPC's strategy helped reduce inflation from its peak in 2022 and return it to within the 1 to 3% target band by September 2024. This strategy kept longer-term inflation expectations near the target midpoint, which is key to medium-term price stability.
In hindsight, an earlier or more aggressive tightening might have reduced inflation sooner, Mr Conway says.
"But this would have been difficult given the data available at the time and could have conflicted with the MPC's mandate back then, which included maintaining maximum sustainable employment."
Despite significant data uncertainty, the MPC relied on the best available information to guide its decisions. The accuracy of our economic forecasts has significantly improved, as economic disruptions from the COVID-19 pandemic have subsided.
Communication of the MPC's strategy was generally clear, though with room for improvement, particularly in how the forward OCR track is conveyed. Overall, the MPC navigated a highly uncertain environment and inflation returned to the 1 to 3% inflation target as forecast.
"We are consistently assessing our performance in maintaining low and stable inflation, which is the best contribution we can make to improving New Zealand's long-run economic performance.
The work released today provides a useful interim update ahead of our next full review scheduled for 2027," Mr Conway says.
