Lessons to be learned from COVID response

The independent review of New Zealand’s monetary policy response to COVID-19 shows the Reserve Bank was too slow to take its foot off the accelerator when the economy recovered more strongly than expected, Finance Minister Nicola Willis says. The review, conducted by Massachusetts Institute of Technology Professor Athanasios Orphanides and former Reserve Bank Assistant Governor David Archer, was established to identify lessons that could be learned to improve the response to future economic shocks. “The review concludes that the initial response to the pandemic from the Reserve Bank’s Monetary Policy Committee (MPC) was appropriate and effective, but monetary policy stimulus remained in place too long. “This stimulus, on top of an already overheating economy, contributed to a costly boom-bust cycle. Inflation reached 7.3 per cent and the unemployment rate fell to what the reviewers call an ‘unsustainable historic low’. “Getting inflation back under control required a substantial tightening of monetary policy that increased unemployment and curtailed growth.” Nicola Willis says the reviewers also took issue with the previous government’s decision to broaden the Reserve Bank’s mandat