Finance Minister Nicola Willis has commissioned a review of the Reserve Bank’s monetary policy during the pandemic.
During the Covid-19 pandemic, the Reserve Bank cut the official cash rate (OCR), which affects mortgage rates and overall borrowing costs, to a record low. It also rolled out a large-scale asset purchase programme—a quantitative easing measure involving government bond buys to pump money into the economy.
While those measures preserved jobs and businesses, Willis said they carried heavy costs. The Reserve Bank has faced ongoing criticism for its decisions, with some attributing recent economic slumps to them.
“The purpose of the review is to learn from experience,” Willis said.
“An independent review means the conclusions found can be objective and constructive.”
The review is slated to conclude in August, with findings released the following month.
“New Zealand could learn to improve the monetary policy response to future major events,” Willis said.
“The Reserve Bank took unprecedented action in response to the Covid-19 pandemic. This included reducing the OCR to 0.25% and the use of additional monetary policy tools, including a large-scale asset purchase (LSAP) programme.”
“These actions helped to preserve jobs and keep businesses afloat, but the indirect impacts included decades-high inflation, losses of about $10.3 billion on the LSAP programme, and a significant spike in asset values, with house prices increasing 30% in one year.”
The review will examine the monetary policy committee’s interest rate decisions and the supporting analysis from the Reserve Bank.
It covers monetary policy committee decision-making and communication, deployment of unconventional monetary tools, and alignment between monetary and fiscal policies.
Athanasios Orphanides and David Archer have been appointed to lead the review. Orphanides previously served as governor of Cyprus’s Central Bank, a member of the European Central Bank’s Governing Council, and as a professor of global economics and management at MIT.
Archer previously served as assistant governor at the New Zealand Reserve Bank and head of the Central Banking Studies Unit at the Bank for International Settlements.