Reserve Bank’s review
Reserve Bank chairperson Neil Quigley doesn’t believe an independent inquiry into the bank’s conduct of monetary policy is necessary, but if there was to be one it would fully co-operate.
‘‘We are entirely open to that,’’ he said.
National Party finance spokesperson Nicola Willis said it would order an independent inquiry as soon as possible if it won the election, saying a self-authored review published by the bank yesterday ‘‘failed the credibility test’’.
The Reserve Bank admitted in that report that inflation could have been ‘‘lessened at the margin’’ if it had started tightening monetary policy earlier in 2021.
Chief economist Paul Conway said annual inflation, which was last measured at 7.2%, could have had ‘‘a ‘6’ in front of it’’, if different decisions had been reached.
But the bank said its review of monetary policy decisions over the past five years found they ‘‘were consistent with the data available at the time’’.
‘‘The easing in monetary policy during the Covid pandemic was warranted and worst-case economic scenarios were avoided,’’ it said.
Willis said the report highlighted mistakes that were made ‘‘but then excuses them, basically claiming they were unavoidable’’.
‘‘There’s really no hint in there of accountability for any failures. I am interested in what someone truly independent would conclude.’’
The bank kicked off a review of its remit and its implementation of monetary policy in June amid mounting criticisms that it had allowed inflation to get out of hand by sticking for too long with monetary policies that were too loose during the Covid pandemic.
But Finance Minister Grant Robertson appeared to effectively
pre-empt the possibility of any serious personal consequences flowing from the report on Tuesday, when he reappointed Adrian Orr as Reserve Bank governor for a second five-year term.
That was over the head of objections from Willis, who wrote to Robertson in September saying the National Party would not support Orr’s reappointment for five years without an independent review of the bank’s performance, citing concerns over ‘‘sustained levels of high inflation’’.
Despite that, Willis said in the wake of the Reserve Bank’s report that she believed she could work with Orr for three years if National were elected.
National still held dear the credibility of the monetary policy framework and the independence of the Reserve Bank, she said.
The Reserve Bank said the easing in monetary policy during the Covid pandemic – which saw the bank reduce the official cash rate to 0.25% for 19 months and inject about $54 billion into the financial system through quantitative easing – was warranted and ‘‘worst-case economic scenarios were avoided’’.
Conway, who joined the bank in May, said ‘‘the current heightened level of inflation could have been lessened at the margin by an earlier tightening in monetary policy in 2021’’.
‘‘However, while we are facing some serious economic challenges, the New Zealand economy has weathered the economic storm created by pandemic and war relatively well. Inflation and unemployment are both low compared to the vast majority of OECD countries,’’ he said.
The Reserve Bank did not begin raising the OCR until October, 2021, and then only did so by 25 basis points.
Infometrics economist Brad Olsen described a decision by the bank to only raise the rate by a further 25 basis points to 0.75% the following month, at the time, as ‘‘birdbrained and spineless’’.