RBNZ welcomes Svensson report

Date 28 February 2001

The Reserve Bank today said it welcomed the judgement of Professor Lars Svensson that “Monetary policy in New Zealand is currently consistent with the best international practice of flexible inflation targeting.”

This follows the release today of the Government’s Independent Review of the Operation of Monetary Policy in New Zealand prepared by Professor Svensson.

Reserve Bank Governor Don Brash commented “Professor Svensson’s review is thorough and extensive. I’m very pleased that Professor Svensson’s research indicates that the Reserve Bank is following best practice in the way it delivers price stability, that being the Bank’s primary function, as set by statute.

“The Reserve Bank is required, under the Policy Targets Agreement, to deliver price stability in such a manner as ‘to avoid unnecessary instability in output, interest rates and the exchange rate’, and Professor Svensson’s research indicates that the Bank is achieving this too.

“I also acknowledge that Professor Svensson’s report is critical of some of the Reserve Bank’s decisions and implementation procedures in the past, and in particular our use of a Monetary Conditions Index between mid-1997 and March 1999. The Reserve Bank itself indicated its concerns in this regard when we introduced the Official Cash Rate in March 1999.

“This performance assessment apart, the bulk of Professor Svensson’s report, and the substance of its recommendations, are about governance and decision-making processes.

“Here I think no-one should rush to judgement. In terms of monetary policy decision making, internationally there are central banks using all the governance and decision-making models canvassed. The challenge is identifying the best option for the New Zealand context, remembering that New Zealand is already doing well in this regard.

“Financial market participants and the public can be confident that among New Zealand policy makers the importance of these issues, the on-going commitment to price stability, and the need for caution are well understood. I look forward to careful and productive discussions with the Government and its advisors in the weeks ahead.”

For further information contact

Paul Jackman

Corporate Affairs Manager

Ph 04 471 3671, 021 497 418, home 04 938 8177, Jackmanp@rbnz.govt.nz