RBNZ’s frequent remit adjustments risk policy error, OECD warns

Published Thu, May 7, 2026 · 12:33 PM

[WELLINGTON] New Zealand should reconsider how frequently it adjusts the Reserve Bank of New Zealand’s (RBNZ) remit because it raises the risk of monetary policy mistakes, according to the Organisation for Economic Cooperation and Development (OECD).

“Maintaining the Reserve Bank of New Zealand’s high credibility and independence is indispensable for returning inflation within the 1 to 3 per cent target band in a difficult and uncertain environment,” the OECD said in its Economic Surveys: New Zealand 2026 report published on Thursday (May 7) in Wellington.

“Given the number and pace of changes in recent years, maintaining the mandate and remit stable for the full five-year cycle would support predictability, credibility and confidence in the monetary policy regime.”

The RBNZ remit is agreed with the finance minister, defining the inflation range and other factors it must target, and is required to be reviewed every five years.

While the latest version was introduced when the centre-right government won power in late 2023, the OECD noted that since 2019, various governments have introduced then removed employment as a second mandate alongside price stability.

Governments have also added, and then removed, housing-related considerations. They have also introduced a monetary policy committee.

“If too frequent, changes to the framework can weaken predictability,” the OECD said. “They can also raise the risk of policy mistakes as the bank grapples with new constraints simultaneously with challenging operational decisions such as the 2026 energy price shock.”

The RBNZ has provisionally forecast inflation will rise to 4.2 per cent in the current quarter due to soaring fuel prices from the US-Iran conflict. The central bank warned that it will act decisively to prevent price pressures from becoming embedded in the economy, raising the prospect of higher interest rates.

Price shock

Faced with a near-term inflation spike, the RBNZ should continue to look through the energy price shock as long as medium-term inflation expectations remain well anchored, the OECD said.

The extent and persistence of price pressures remains uncertain while the RBNZ must also grapple with factors such as rising local government taxes and insurance costs that lie outside the reach of monetary policy, it said.

“This heightens the importance of the RBNZ’s credibility and independence, which are central to anchoring inflation expectations at the lowest economic cost,” it added.

International evidence suggests that even perceived political pressure can also weaken credibility and raise inflation uncertainty, the OECD said.

While New Zealand has a strong framework with an operationally independent central bank, the OECD warned that upcoming scrutiny of the monetary policy response to the Covid-19 pandemic could “reopen debate about the wider monetary policy framework, particularly if the process is perceived as politicised”.

“Clear communication that the review is a technical monetary policy assessment will be important, especially as the publication in September falls in the lead-up to the general election” scheduled for November, it said.

The OECD also welcomed government investment in improved data collection to assist RBNZ decision-making.

“Several high-frequency indicators – particularly for wages, labour supply, housing costs and firm-level price setting – remain subject to delays or limited coverage,” the OECD said.

The quarterly gross domestic product data are produced with one of the longest lags among OECD members and “exhibit economically implausible volatility, even for a small economy”, it said. BLOOMBERG