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The Reserve Bank of New Zealand Act 1989 specifies that the primary function of the Reserve Bank shall be to deliver "stability in the general level of prices." Section 9 of the Act then says that the Minister of Finance and the Governor of the Reserve Bank shall together have a separate agreement setting out specific targets for achieving and maintaining price stability. This is known as the Policy Targets Agreement (PTA).
The PTA has four sections. The first confirms that "the Reserve Bank is required to conduct monetary policy with the goal of maintaining a stable general level in prices." It also summarises the Government's overall economic objectives.
The second section says that the Bank's inflation target shall be 1 to 3 per cent on average over the medium term, defined in terms of the All Groups Consumers Price Index (CPI), as published by Statistics New Zealand.
Section 3 says that when external events push inflation above or below its medium-term trend, "the Bank will respond consistent with meeting its medium-term target." This means that in that circumstance the Reserve Bank is required to get inflation back to "1 to 3 per cent on average over the medium term."
The final section describes how the Reserve Bank shall implement and be accountable for its decisions. This includes providing explanations for any inflation breaches, or projected breaches, in the Bank's quarterly Monetary Policy Statements. The last section also says that, as it implements monetary policy to achieve price stability, the Bank "shall seek to avoid unnecessary instability in output, interest rates and the exchange rate."
See http://www.rbnz.govt.nz/monpol/pta/3027620.html for more information
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