The forward-looking nature of monetary policy is reflected in the Policy Targets Agreement (PTA) between the Governor of the Bank and the Minister of Finance, which specifies the price stability target as “future CPI inflation outcomes between one percent and three percent on average over the medium term, with a focus on keeping future average inflation near the two percent target midpoint”.
There are difficulties and uncertainties involved in assessing the current state of the economy and its likely future path. Modern central banks therefore put a huge amount of energy into forecasting. Events such as the global financial crisis and the Canterbury earthquakes showed how we must be prepared to pivot, at times very quickly.