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What Is The Reserve Bank Of New Zealand?

Forex Hound Team — Thu, 31 Jan 2008 08:30:00 EST

The Reserve Bank of New Zealand is New Zealand’s central bank. It was established in 1934, and although not a government department, has been wholly owned by the government of New Zealand since 1936. Like most central banks, the Reserve Bank is primarily a policy organisation, and has three main functions:

What Is Monetary Policy?

Forex Hound Team — Wed, 30 Jan 2008 08:36:00 EST

Today, the Reserve Bank uses monetary policy to control inflation and keep it
within a specific target band. Monetary policy is encountered by ordinary New Zealanders in several ways. New Zealanders directly encounter the main instrument of monetary policy, the Official Cash Rate (OCR), when they borrow money at retail interest rates through mortgages, credit cards or personal loans, or when they save money in bank accounts that earn interest. Retail rates of interest are directly related to the OCR set by the Reserve Bank. Other ways that New Zealanders encounter monetary policy are through its effect on inflation and economic activity. Since the late 1980s, monetary policy has contained inflation within narrow limits – so effectively, in fact, that we forget that just a generation ago it was thought normal to have annual price rises of 16 or more percent. Monetary policy also helps prevent large swings in economic growth and employment.

What Is Inflation?

Forex Hound Team — Tue, 29 Jan 2008 08:46:00 EST

Inflation is the term used to describe a rise of average prices through the economy. It means that money is losing its value.

The underlying cause is usually that too much money is available to purchase too few goods and services, or that demand in the economy is outpacing supply. In general, this situation occurs when an economy is so buoyant that there are widespread shortages of labour and materials. People can charge higher prices for the same goods or services.

Inflation can also be caused by a rise in the prices of imported commodities, such as oil. However, this sort of inflation is usually transient, and less crucial than the structural inflation caused by an over-supply of money.

What Is The Official Cash Rate?

Forex Hound Team — Mon, 28 Jan 2008 08:55:00 EST

The Official Cash Rate (OCR) is the interest rate set by the Reserve Bank to meet the inflation target specified in the Policy Targets Agreement. The agreement signed in September 2002, between the Minister of Finance and the Governor of the Reserve Bank, requires the Reserve Bank to keep inflation, on average over the medium term, at between 1 and 3 percent per annum.

The OCR was introduced in March 1999 and is reviewed eight times a year by the Bank. Monetary Policy Statements are issued with the OCR on four of those occasions. Unscheduled adjustments to the OCR may occur at other times in response to unexpected or sudden developments, but to date this has occurred only once, following the 11 September 2001 attacks on the World Trade Centre in New York.

What Is The Policy Targets Agreement?

Forex Hound Team — Sun, 27 Jan 2008 09:02:00 EST

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).