…the very next day, [Roger] Douglas appeared on TV declaring his intention to reduce inflation to ‘around 0 or 0 to 1 percent’ over the next couple of years, and then went on to make several similar comments in the following days.
Douglas would soften his stance on specific timelines but ask the Reserve Bank and Treasury to develop public inflation goals for the next few years that would support his earlier statements. The Bank added 1 percentage point to Douglas’s upper range to account for the measurement bias in inflation data at that time, arriving at a target range of 0–2 percent. Michael Reddell, head of the Reserve Bank’s monetary policy unit, said it was settled on ‘more by osmosis than by ministerial sign-off’.
This development led officials to entertain the idea of making inflation targets part of the Bank’s monetary policy framework. David J. Archer, a former Assistant Governor, said inflation targets were eventually chosen ‘as the least bad of the alternatives available’.
…A new Reserve Bank Act was passed in December 1989 and came into effect in February 1990. Governor Don Brash was tasked with reaching the 0–2 percent target by the end of 1992. To the great surprise of many, it was achieved a year ahead of schedule in December 1991.
Here is much more from Oscar Skyes at Works in Progress.
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