822 NEW ZEALAND GAZETTE No. 39

disharmony and lack of action and I hereby dissolve the
Oamaru North Primary School Board of Trustees and direct
the Secretary of Education to appoint a Commissioner to act
in its place.

Dated at Wellington this 12th day of March 1990.

P. B. GOFF,
Minister of Education.

go2999

Appointment of Commissioner

Pursuant to section 107 of the Education Act 1989,
and following the dissolution of the Oamaru North Primary School
Board of Trustees, by notice in this Gazette, I hereby appoint
Malcolm Kissell as Commissioner to act in the place of the
Board.

Dated at Wellington this 13th day of March 1990.

M. O’ROURKE,
Secretary of Education.

go2998

Finance

Reserve Bank of New Zealand Policy Targets Agreement

In terms of section 9 of the Reserve Bank of New Zealand Act
1989 (the Act), the Minister of Finance (the Minister) and the
Governor of the Reserve Bank of New Zealand (the Governor)
agree as follows:

1. Inflation Targets Consistent with section 8 of the Act, the
   Reserve Bank should formulate and implement monetary
   policy with the intention of achieving price stability by the year
   ending December 1992. An annual inflation rate in the range
   of 0 to 2 per cent will be taken to represent the achievement of
   price stability. The inflation rate should be kept within that
   range for the remainder of the Governor’s current term of
   office, which ends on 31 August 1993, and conditions at that
   date should be consistent with the maintenance of sustained
   price stability thereafter. In pursuing this target, and subject to
   the caveats below, the Bank’s implementation of monetary
   policy should be designed to achieve a steady reduction in the
   annual rate of inflation (exclusive of the direct impact of the
   July 1989 GST increase) throughout the period to December

2. Each policy statement released by the Bank under
   section 15 of the Act should contain a projected path for
   inflation over the following five years.

3. Measurement of Inflation Section 8 of the Act requires the
   Bank to direct monetary policy towards the stabilisation of the
   “general level of prices”. In pursuing this objective, the Bank
   will monitor price movements as measured by a range of price
   indices. However, it is considered that the primary measures of
   prices used to calculate the inflation rate for the purpose of
   these targets should relate to the prices of goods and services
   currently consumed by households. Unfortunately, the All
   Groups Consumers Price Index (CPI) is not an entirely suitable
   measure of these prices since it also incorporates prices and
   servicing costs of investment-related expenditures, notably in
   the housing field. The New Zealand CPI is unusual amongst
   OECD consumer price indices in including components for
   both the purchase price of dwellings and the cost of mortgage
   finance. For this reason, while the CPI will, for practical
   purposes, be the measure of inflation used in setting the
   targets, the Bank is to prepare an alternative measure of
   consumer prices based on an internationally comparable
   approach, so as to provide a basis for assessing the impact of
   investment-related housing costs on the CPI. In particular, the
   Bank’s adjusted index will replace the current expenditure
   based measure of housing costs in the CPI with a measure
   based on imputed housing rentals. The Bank shall publish this
   index on a quarterly basis and is to ensure that the calculation
   of the index is verifiable by reputable external sources.

4. Variations to Targets

A. If an Order-In-Council comes into force under section 12
of the Act, the policy targets in this document cease to
have effect and must be replaced by new targets within
30 days of the making of the order in accordance with
section 12 (7) of the Act.

B. These targets may also be varied at any time by
agreement between the Governor and the Minister in
accordance with the provisions of section 9 (4) of the Act.
The following specific instances will trigger a
renegotiation of these targets in accordance with these
provisions:

(i) The Bank shall notify the Minister if, in 1992 and 1993,
there is, or is likely to be, a divergence of at least one
half of one percentage point between the annual
inflation rate of the CPI and of the Bank’s
internationally comparable measure of consumer
prices. Within 30 days of this notification, the Governor
may choose to renegotiate new policy targets so as to
take account of the effect of the deficiencies in the
construction of the CPI.

(ii) Any decrease or increase in GST, or any material
change in other indirect taxes, will automatically lead to
a renegotiation of these targets where the change is
expected to impact directly on the 1992 or 1993 annual
inflation rate. In general, a material change in indirect
taxes will be interpreted as one which has a positive or
negative impact on the price level of at least one half of
a percentage point within a one year period. It is
intended that the targets will be renegotiated on the
basis of allowing the direct effect of the change to
impact on the price level, with no accommodation of
second round effects. Following a GST change, or
following what the Bank estimates to be a material
change in other indirect taxes, the Bank shall inform
the Minister in writing of its estimate of the direct effect
of the change on the price level. If necessary, new
policy targets shall be set within 30 days of this estimate
being received by the Minister.

(iii) A significant change in the terms of trade arising from
a decrease or increase in either export prices or
import prices will trigger a renegotiation of the policy
targets, where the Bank indicates to the Minister in
writing that it estimates the change will have a
significant direct impact on the 1992 or 1993 annual
inflation rate. In informing the Minister that a
significant change has occurred, the Bank should
provide an estimate of the direct price effects of the
terms of trade change on the price level. Following the
provision of this estimate, new policy targets shall be
set within 30 days. The intention of this provision is to
enable some or all of the direct price effect of a
significant terms of trade change (whether positive or
negative) to be accommodated but it is not intended to
accommodate any second round influences. Thus it is
intended that any terms of trade change will have, at
most, only a transitory effect on the inflation rate.

(iv) In the case where some other crisis situation, such as
a natural disaster or a major disease-induced fall in
livestock numbers, is expected to have a significant
impact on the price level, the same procedures should
be followed as in the case of a terms of trade change.

C. It is intended that section 9 (4) of the Act will not be
utilised to alter the policy targets in response to any
domestically sourced inflationary shock other than the
particular cases already considered. In particular,
increases in wages or profit margins that are inconsistent
with these targets will not be accommodated by the Bank
and will not give grounds for automatic renegotiation of
the policy targets.