Large Scale Asset Purchases cost the economy about $10.5b, but had positive benefits. Photo: RNZ
The Reserve Bank's $53 billion money-printing policy during the pandemic paid for itself and helped keep the economy functioning at a time of stress, according to the central bank's chief economist.
In a speech to a Sydney investment conference, Paul Conway said the bond-buying programme, known as Large Scale Asset Purchases (LSAP), cost the economy about $10.5b in losses, but had significant positive benefits.
"By boosting economic activity during the pandemic, LSAPs increased government tax revenues," he said. "This higher revenue almost entirely covered the direct losses from LSAPs, leaving consolidated crown debt virtually unchanged over the medium term."
He said RBNZ research showed the programme had also restored financial market confidence, then lowered long-term interest rates, which held down the exchange rate and supported exports.
Several commentators strongly criticised the LSAP programme, the cost and the related programme of $19b of cheap loans to banks.
Negative interest rates better
Conway said using negative interest rates would have been preferable, but that was not available when Covid hit.
Negative interest rates allow a central bank to charge commercial banks to hold their excess reserves, instead of paying them interest, as a way to lending to businesses and individuals to stimulate economic activity.
"If moderately negative interest rates had been possible during the pandemic, our work suggests that could have delivered similar outcomes for growth and inflation as LSAPs, but at a lower cost to the crown," Conway said.
He said the then-government's various big-spending policies, such as the wage subsidy and other pandemic support policies, also worked against the RBNZ's approach and contributed to the inflation spike.
"Containing inflation over this period required the OCR to be higher than otherwise, if fiscal support during the pandemic had been more timely and temporary."
Last month, Conway said a review of RBNZ actions during the pandemic showed it could have been quicker and more aggressive in tackling inflation.
No extra rate-setting meetings
Meanwhile, in a separate release, Conway said the RBNZ would not add an extra monetary policy meeting into its calendar, despite political and business criticism of the near three-month gap over the summer break.
The RBNZ holds seven meetings a year, four of which are monetary policy statements with forecasts, extensive commentary and a news conference.
"We have found no evidence that, during the past nine years, the 12-week gap between decisions over summer has led to unusual divergence between financial market expectations for policy rates and our own," he said.
"However, we acknowledge the perception that the gap between November and February is too long, and have sought ways to reduce it, within the confines of data availability."
A schedule of meetings for 2026/27 showed the last meeting being pushed out a couple of weeks from late November to early December, but the first meeting of 2027 still due mid-February.
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