Reserve Bank kept interest rates low too long, Covid-19 review finds
An independent review has concluded that New Zealand's Reserve Bank maintained low interest rates for too long following the initial Covid-19 response. While the bank's early actions were praised for preventing economic collapse, the report suggests policy failed to adjust quickly enough as the economy recovered.
Why it matters
This critique highlights the challenges central banks face in balancing emergency stimulus with the risk of over-stimulating an economy, which can lead to inflation.
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The Reserve Bank's response to the Covid-19 started well, but went on much too long.
That is the finding of an independent review which was released by the Government on Tuesday.
The review was conducted by Massachusetts Institute of Technology Professor Athanasios Orphanides and former Reserve Bank Assistant Governor David Archer and examined the decisions made by the Reserve Bank's monetary policy committee (MPC), and the analysis around those decisions.
It said the initial response was appropriate.
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