Finance Minister Grant Robertson has released details of a review of the Reserve Bank that will broaden the focus of the bank from controlling inflation to include employment.
The review will also work towards changing the model for monetary policy decisions to a committee model.
Robertson said the review would be undertaken in two phases, with an expert advisory panel to provide input.
"Phase one of the review will focus on the election commitments made by Labour to add maximising employment to the price stability of the bank, and to provide for a committee decision-making model for monetary policy decisions," Robertson said.
"In addition, the review will consider whether changes are required to the role of the Reserve Bank board as a consequence of the alterations to the decision making model."
The NZ dollar held steady following the release of the terms of review, and is currently trading at $0.6945 - a sign that markets were unfazed and saw no surprises.
Robertson said the work was important for New Zealand.
"Our monetary policy framework with its focus around price stability and inflation control has served New Zealand well in general.
"There has been significant pressure on monetary policy in recent years, particularly in wake of the global financial crisis. In addition, it is my view that monetary policy should play its part in the overall economic goals of our Government."
Robertson said the operational independence of the bank would remain, and he did not accept that broadening its objectives would make inflation rises more likely.
"We are proposing to retain the 1-3 per cent band."
Asked whether the changes could mean lower interest rates for Kiwis with mortgages, Robertson said the goal was to provide stability but those decisions were for the bank.
"It is true that in other jurisdictions they have to weigh up the different measures they look at...my view is the bank understands the importance for all New Zealanders of stability and certainty in outcomes."
In phase two, the Reserve Bank and Treasury will work together to "produce a list of areas where further investigations of the bank's activities may be desirable". That list will be outlined by early next year.
New Zealand First's coalition deal with Labour included an agreement to "review and reform the Reserve Bank Act". Today's review outline doesn't go as far as moving towards a so-called "Singaporean model" which leader Winston Peters wanted.
Robertson also re-signed the current policy targets agreement (PTA) with the Acting Governor of the Reserve Bank, Grant Spencer.
Opposition leader Bill English said it would be misleading for the Government to claim that reforming the Reserve Bank Act would greatly improve the economy.
"In an economy that's been growing at 3 per cent, [and should] continue to do so for the next three or four years, they should be careful about making changes that are unnecessarily disruptive.
"It's hard to tell whether they are trying to do some window-dressing or make some fundamental change. The lesson from around the world is that the decisions of central banks are fairly similar, even if you include things like employment and exports.
"But we've yet to see what it is they're actually proposing. There's a range of signals from business as usual through to quite radical change, so it's up to the Government to explain what it wants to achieve with a review."
National finance spokesman Steven Joyce said Labour needed to ensure there remained complete clarity over the bank's primary role.
"The bank already takes employment into account when setting interest rates so this makes Mr Robertson's plan to introduce maximising employment as a second objective for the bank redundant at best, and potentially confusing.
"Monetary policy can only work successfully alongside appropriate fiscal and microeconomic policy settings and these are controlled by the government of the day. Mr Robertson needs to be aware he won't be able to put in place policies that reduce employment and then blame the Reserve Bank if they can't achieve full employment."