Actions saved 20,000 jobs, bank estimates

About 20,000 more people would be unemployed if the Reserve Bank had not reduced interest rates in the wake of Covid, the central bank’s governor Adrian Orr says.

Delivering a lecture via Zoom to the Australian National University in Canberra, Orr said the bank had begun researching whether looser monetary conditions increased or decreased income and wealth inequality, but he said international studies were ‘‘inconclusive’’.

Orr delivered the speech in the shadow of a letter from Finance Minister Grant Robertson that noted low interest rates could increase house prices and sought views from the bank on ways to address that issue.

An unapologetic Orr said his speech was not intended to be the bank’s response to that letter, but he gave no indication during it that he felt the bank had got any balance wrong.

‘‘Our actions assisted the New Zealand economy to remain on track to experience low and stable consumer price inflation, a lower unemployment rate than otherwise, a New Zealand dollar exchange lower than otherwise, and ongoing financial stability,’’ he said.

Unemployment in the September quarter was 5.3 per cent, or 151,000, according to Stats NZ. But Orr said the bank had estimated it would have come in at 6 per cent ‘‘in the absence of our recent monetary policy actions’’.

Those actions, which include a $100 billion quantitative easing programme, had been effective to date in supporting both inflation and employment ‘‘as intended’’, he said.

In an apparent further sign the bank would not be easily deflected from its current policy settings,

Orr said its ‘‘legislative mandate and operational independence’’ had put it in good stead to act swiftly and with confidence to buffer the economic impact of the virus.

Orr acknowledged New Zealand had a ‘‘challenge’’ with house prices, saying they were ‘‘sitting in the top three globally’’.

But he reiterated the bank’s view that ‘‘many other factors’’ other than monetary policy were influencing that, saying the key factors were supply and demand.

‘‘A historic undersupply of housing and restrictions on land supply are two widely acknowledged issues.

‘‘More recently, with the impact of Covid, employment prospects have also tended to remain more positive for the traditional home-owning age group, compared to youth,’’ he said.

New Zealanders living overseas had also been returning home, stoking demand.

Orr acknowledged New Zealand had a ‘‘challenge’’ with house prices.