Below is a very good video from the Reserve Bank of New Zealand outlining how the Official Cash Rate (the key rate of the Central bank) works in maintaining price stability. This is part of the Internal Assessment for NCEA Level 2. Remember the following:
Reserve Bank Act 1989 – made price stability the sole aim of monetary policy.
- The RBNZ, who implements monetary policy, was made responsible for keeping prices “stable”.
- “Price Stability” is defined in the Policy Target Agreement (PTA) as keeping the inflation rate between 1 and 3%.
- “Inflation” is measured by the percentage change in the Consumer Price Index (CPI). Statistics NZ calculates the CPI.