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Summarised by Centrist
Finance Minister Nicola Willis has announced an independent inquiry into the Reserve Bank’s monetary policy response during the COVID pandemic, including its $55 billion large-scale asset purchase (LSAP) programme.
During the pandemic, the Reserve Bank cut the Official Cash Rate to a record low of 0.25 per cent and created roughly $55 billion in digital money to support the economy.
Willis said those actions “helped to preserve jobs and keep businesses afloat,” but noted the “indirect impacts included decades-high inflation, and losses of about $10.3b on the LSAP programme and a significant spike in asset values, with house prices increasing 30 per cent in one year.”
The review will examine decisions made by the Monetary Policy Committee, the advice provided by the Reserve Bank, and the coordination between spending and borrowing at the time.
The Reserve Bank has previously denied that its money printing “meaningfully” contributed to excessive inflation.
Although the Reserve Bank operates independently of the government, the LSAP programme losses were underwritten by the then-Labour government, meaning taxpayers ultimately bore the cost. The ultra-low OCR also coincided with increased government borrowing during the pandemic period.
Willis said the purpose of the inquiry is “to learn from experience” and improve the response to future crises.
Labour leader Chris Hipkins called it “cynical,” arguing that if the government wanted answers, it would have acted earlier. Green co-leader Chlöe Swarbrick described the timing as “suss,” noting the review will report back in September, as the election campaign intensifies.
