10 Nov 2022

Reserve Bank rejects political criticisms, stands by review

6:31 pm on 10 November 2022
Adrian Orr, Governor of the Reserve Bank of New Zealand

Adrian Orr, Governor of the Reserve Bank of New Zealand Photo: RNZ / Cole Eastham-Farrelly

The Reserve Bank is standing by its review of monetary policy and says political attacks against it are similar to those against its equivalents around the world.

The central bank published a lengthy review of its past five years of monetary policy this morning, a legal requirement to assess its own processes and decisions and identify what can be learned for the future.

It found inflation should have been countered earlier, but monetary policy decisions were consistent with the data and information available at the time.

The bank, its processes, monetary policy decisions, and its governor have been criticised and brought into question by opposition parties this week after Finance Minister Grant Robertson this week confirmed Adrian Orr would continue in the role for another five years.

National has been critical of the appointment, saying an interim governor would have been more appropriate as next year's election approaches.

Finance spokesperson Nicola Willis had said the review - published after Orr's reappointment - was like asking the RBNZ to mark its own homework, and demanded an independent one be conducted instead.

She continued the assault today in a statement calling the review a "back patting exercise".

"Predictably, the Reserve Bank's marking of its own homework pulls its punches and fails to deliver any accountability for mistakes in the management of the New Zealand economy," she said.

"The report, written by the Bank's own staff, hints at mistakes that have worsened price increases and the cost of living crisis, but fails to say whether those mistakes were avoidable and if so who should be held accountable for them."

Deputy leader of National Party Nicola Willis

Photo: RNZ / Angus Dreaver

Party leader Christopher Luxon said the report the central bank delivered was not what New Zealand needed.

"What we needed was an independent review by independent people to assess whether the government's actions and their tremendous amount of spending - the billion dollars more a week that we're spending - coupled with the Reserve Bank actions and the amount of money that has been printed actually contributed to making the cost of living crisis and inflation much worse."

Orr dismissed those criticisms, saying the review had been assessed by independent experts.

"Of course it's not the case. If it did we wouldn't have independent external reviews - if I wanted to write it myself I wouldn't have asked the board to be here," he said.

"I have no comments about the politics. I also don't feel unique - globally, central banks throughout the world are under immense attack - much of it which becomes very personal very quickly."

"All I can say is I'm extremely proud to be leading this institution and continue to act totally consistent with the mandate."

The bank's chief economist Paul Conway also defended the bank's approach to inflation, saying the bank would have needed perfect foresight to have been able to have kept annual inflation within the target range of 1 to 2 percent right now.

"The monetary policy committee would have had to have perfect foresight of the whole series of supply shocks that have rolled through the global economy these past few years, including of course the Russian invasion of Ukraine," he said.

Reserve Bank chief economist Paul Conway.

Paul Conway Photo: Supplied

He also highlighted the delay between making monetary policy changes and the effects seen in the economy.

"They would have had to increase the OCR to almost 7 percent a couple of years back when New Zealand was in the thick of a global pandemic - with all of the economic turmoil that would have been unleashed with such an unrealistic decision, so this is clearly an implausible scenario - and it would also have been inconsistent with the remit."

He downplayed the effect an earlier intervention would have had.

"Had monetary conditions been tighter coming through 2021, if [the monetary policy committee] had have had perfect foresight, inflation would have been marginally below what it is now - it probably would have had a six in front of it instead of a seven."

Willis, however, said the report was not good enough and should have been independent.

"This report could never answer the most vital questions because it was written by the people responsible," she said.

"National again repeats our call for an independent inquiry into the monetary policy response to Covid-19. This is about learning lessons for the future and upholding basic standards of accountability. New Zealanders deserve no less."

Minister of Finance Grant Robertson said the report was valuable because it offered a guide on how to handle a major crisis and included an assessment of lessons learned.

"It is really important to note that the report does indicate that they got the big decisions right - every central bank in the world was faced with these decisions all at the same time."

Deputy Prime Minister Grant Robertson

Photo: RNZ / Angus Dreaver

He said a full review of the government's Covid-19 response would include an assessment of monetary and fiscal policy, but he did not want the central bank to become a political football.

"I certainly don't want it to be and I don't think it's good for New Zealand that it becomes one."

Reserve Bank Board chair Neil Quigley said the bank did not think an independent review would be necessary, but they would welcome one if it were to be carried out.

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