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RBNZ cleared of criticism over handling of pandemic

A review by the Reserve Bank (RBNZ) has said it dealt with the pandemic well but it still made some mistakes.

Thursday, November 10th 2022, 12:31PM 1 Comment

by Eric Frykberg

This comment came in a report on how well the bank determined monetary policy from 2017 to 2022.

Its findings were largely supported by two international reviewers.

The report said the bank's Monetary Policy Committee engaged in “agile and nimble decision making” in response to the pandemic. These were a resolution to reduce the Official Cash Rate (OCR) to 0.25%, as well as buying Government bonds (LSAP) and making cheap loans available to banks (FLP).

The report says the dramatic easing in monetary policy was largely warranted during the pandemic, as managing future high inflation down, rather than dealing with deflation and economic depression, was likely to be the least-regrettable option.

It adds the LSAP programme successfully restored functionality to financial markets, and FLP provided additional stimulus and supported confidence in the banking system. . The LSAP programme put significant downward pressure on government bond yields and the exchange rate during the pandemic, while the FLP reduced bank funding costs and retail interest rates.

The review also found the Monetary Policy Committee's dual mandates of fighting inflation and maximising employment objectives were not in conflict over the review period. This finding rebuts repeated criticism that the bank's two mandates can undermine each other.

The review also had some criticism of the bank. It did not communicate its objectives to the public well enough and it underestimated the impact of fiscal policy, such as Government support payments, on the way the pandemic was dealt with.

It could also have been more flexible with FLP, which would have allowed an early termination of the programme as economic conditions improved.

FLP has been charged with helping to propel the housing market higher, when homes were already deemed too expensive even before the pandemic.

In addition, monetary conditions could have been tightened earlier in 2021, by reducing the scale of the LSAP or curtailing it earlier. In addition the OCR could have been raised earlier.

The review said the bank could develop broader insight into the impacts of supply shocks on inflation, and make other improvements such as seeking new sources of data for economic monitoring.

In a peer review, a former deputy governor of the Reserve Bank of Canada, Lawrence L. Schembri, said the formulation and implementation of monetary policy was consistent with its primary objectives regarding prices and employment.

Another peer review by a professor of economics at ANU, Warwick McKibbin, had a similar opinion.

Tags: RBNZ

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Comments from our readers

On 11 November 2022 at 12:17 pm Amused said:
As someone else said this morning this internal review was like asking the RBNZ to mark its own homework. Effectively it's nothing but a back patting exercise.

No prizes for guessing why the former deputy governor of the Reserve Bank of Canada and the professor of economics at ANU were commissioned by the RBNZ (Mr Orr) to do the peer reviews. Birds of a feather flock together.

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 ▼6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 ▼6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - ▼7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼6.79 - -
Co-operative Bank - Owner Occ 8.40 ▼6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 ▼6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 ▼7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - ▼6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 ▼7.74 7.29 6.59
SBS Bank Special - ▼7.14 6.69 5.99
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 ▼6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.21 7.29 6.65

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