What The RBNZ Monetary Policy Statements Tell Us About Inflation Targeting in New Zealand 1990-2025

We examine Reserve Bank of New Zealand (RBNZ) Monetary Policy Statements (MPS) from March 1990 to June 2025—real time data spanning four governors—to evaluate the performance of inflation targeting. Across the entire period, governors consistently acknowledged the long and variable lags of monetary policy and were therefore presented with one and two years ahead inflation forecasts. Each governor applied substantial judgment to these projections when setting the Official Cash Rate (OCR). Inflation was systematically underpredicted, and breaches of the upper bound of the target range occurred without being anticipated. Falling behind the curve meant policy was often reactive rather than forward looking. Forecast errors caused persistent policy errors. The data show that the real OCR, various proxies for real short- and long-term interest rates, and real spreads are uncorrelated with multiple measures of the output gap and with inflation itself, which begs the question of how monetary policy affects inflation. By contrast, certain measures of inflation expectations that incorporate government spending into the information set explain roughly 40 percent of New Zealand inflation. Therefore, institutional credibility explains the RBNZ’s record of maintaining inflation within the 1–3 percent target range, on average, over the past 35 years.