Review finds Reserve Bank was too slow to tighten monetary policy

An independent review has found the Reserve Bank was too slow to reduce monetary stimulus following the Covid-19 pandemic. The report, authored by former Reserve Bank assistant governor David Archer and MIT professor Athanasios Orphanides, stated that the economy overheated to an extreme degree because stimulus remained in place for a full year too long. This delay contributed to inflation reaching 7.3% and unemployment falling to an unsustainable historic low.

The reviewers described the bank's initial 2020 emergency response as rapid and praiseworthy. However, they noted that unexpected positive data were discounted and risks to inflation were downplayed as the economy recovered. The review also suggested that the dual mandate to support both employment and price stability, introduced by the previous government, helped steer decision-makers away from price stability.

Finance Minister Nicola Willis, who commissioned the review in February, said the findings showed the bank was "too slow to take its foot off the accelerator". She noted that the government had already moved to restore the bank's single focus on inflation. The reviewers recommended that the Monetary Policy Committee develop a more robust strategy that relies less on discretion and addresses known vulnerabilities.

Labour leader Chris Hipkins criticised the timing of the report's release, describing it as an "exercise in cynical political manipulation" ahead of the election. He argued the report contained nothing new and noted that previous royal commissions had also found the stimulus could have ended earlier. Willis responded by suggesting the previous Labour government also needed to take responsibility for excessive spending and borrowing.

Where reports differ

• One report specifies the unemployment rate was 3.2%, while others describe it generally as an unsustainable historic low

Compiled from reports by The Post, 1News and Stuff.