New Zealand

New Zealand initially had weak and ad hoc monetary policy arrangements but underwent a period of intensive financial liberalisation in the second half of the 1980s, which allowed monetary policy to become more effective and led onto the adoption of inflation targeting (before any other country) from 1990.

Years Targets and attainment Classification
1974-84 exchange rate fixed by central bank,  no autonomous forex market; devaluations 1974, 1975, 1976, and 1979 designed to maintain competitiveness, followed by smaller and more frequent depreciations; monetary policy initially operated largely through reserve asset ratios for banks and government securities ratios for non-bank financial intermediaries, but minor interest rate liberalisation, partly reversed 1981, and efforts to increase non-monetary financing of budget deficits unstructured discretion UD
1985-89 thorough financial liberalisation from mid-1984 and floating of exchange rate March 1985 enables monetary policy to focus on control of primary liquidity, with decisions taken on basis of wide range of indicators; main monetary instrument is OMOs to affect bank reserves, but control turns out harder than expected; growing interest in final objective of price stability, with exchange rate as important influence loosely structured discretion LSD
1990-2017 formal inflation targets, 1990-92 declining then constant, met or near-met in every year; initially main monetary instrument is OMOs, also announcements, but from 1999 policy interest rate; (floating) exchange rate considered key influence on inflation; some refinements to inflation targeting, mainly to increase flexibility; repeated undershooting of central bank’s target midpoint 2012-17 but inflation expectations remain anchored full inflation targeting FIT

Selected IMF references: RED 1976 20-1, 23-4, 26, 35-6; RED 1981 pp75; RED 1984 pp59-61, 75; SR 1984 pp6-8, 14-16; RED 1986 pp48-52, 67; RED 1990 pp41-2; SR 1991 pp14-16; RED 1993 pp16-18; SR 1993 pp11-12; RED 1995 pp24-6; SISA 1996 ch. II; SR 1997 pp10-13; SISA 1999 ch. I; SR 1999 pp7-8; SI 2000 ch. IV; SR 2003 p11; SR 2010 p7; SR 2018 p10; SI 2018 pp23-34.

Additional sources: Reddell (1999); Graham and Smith (2012).

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