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The Origins of New Zealand's Inflation Targeting

During a televised interview in 1988, then-finance minister Roger Douglas spontaneously suggested that inflation should be kept within a narrow range of 0 to 1%. To provide some flexibility, Reserve Bank governor Don Brash proposed expanding the upper limit by an additional percentage point. This idea was soon formalized in the Reserve Bank Act the following year, which empowered the finance minister to dismiss the Reserve Bank governor if the inflation target was not achieved.

Although the legal framework and specific targets have evolved over time, the core objective has remained unchanged: the Reserve Bank is primarily responsible for maintaining inflation within a 1 to 3% band over the medium term.