era monetary policymaking, saying vulnerabilities in system still exist
An independent review of New Zealand's Reserve Bank monetary policy during the Covid-19 pandemic suggests that the central bank's framework led to policy mistakes. The report recommends prioritizing price stability and increasing transparency in committee decision-making.
Why it matters
It highlights the risks of central bank overreach during crises and informs future economic policy frameworks for managing inflation and employment.
An independent review of how the Reserve Bank set monetary policy during the Covid-19 pandemic has confirmed what has been widely acknowledged: the central bank overcooked its response to the crisis.
This caused inflation to soar and forced the Reserve Bank to aggressively hike interest rates, impeding economic growth and employment in its bid to restore stability.
However, the review doesn’t squarely lay blame on former Reserve Bank Governor Adrian Orr and other Monetary Policy Committee members, who decided how to set the Official Cash Rate (OCR) and how much money to figuratively print in 2020 and 2021.
Rather, it concludes the framework they were operating in was a big part of the problem.
“A core element of our message is that policy framework vulnerabilities that are modest in normally uncertain times can, and did, allow policy mistakes in times of great uncertainty,” the reviewers said.
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