What is the Reserve Bank of New Zealand?
The Reserve Bank of New Zealand is commonly referred to in a lot of financial information. Understanding how the RBNZ works and operates will allow you to understand a fuller context of finance in New Zealand.
The RBNZ is responsible for financial stability in New Zealand.
Some of the RBNZ's roles include:
Currency needs for the public
Promotes a sound and efficient financial system
implement and formulate monetary policy
Or, as per the Reserve Bank of New Zealand Act 1989, the role of the RBNZ can be compared to the purpose of the Act:
(1) The purpose of this Act is to promote the prosperity and well-being of New Zealanders, and contribute to a sustainable and productive economy, by providing for the Reserve Bank of New Zealand, as the central bank, to be responsible for— (a) formulating and implementing monetary policy directed to the economic objectives set out in subsection (1A), while recognising the Crown’s right to determine economic policy; and (b) promoting the maintenance of a sound and efficient financial system; and (c) issuing bank notes and coins in New Zealand to meet the needs of the public; and (d) carrying out other functions, and exercising powers, specified in this Act. (1A) The economic objectives are— (a) achieving and maintaining stability in the general level of prices over the medium term; and (b)supporting maximum sustainable employment.
If you would like to read more about what the RBNZ is, you can click here.
They implement 'Monetary Policy' by setting the Official Cash Rate (OCR). The OCR is an interest rate established by the Reserve Bank of New Zealand. The OCR is determined 7 times a year.
This graph shows the patterns of the OCR rate:
How do the OCR rates effect us?
The OCR rates are what banks base their interest rates from. This enables the RBNZ to basically control all of the interest rates in New Zealand and therefore, in turn control inflation.
When market interest rates increase, people spend less on goods and services. This is because their savings get a higher rate of interest and there is an incentive to save; and conversely, people with mortgages and other loans may experience higher interest payments. When people save more or spend less, there is less pressure on prices to rise, and therefore inflation pressures tend to reduce.
If you would like to learn more about the OCR rate, you can click here.