Source: New Zealand Government
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 mandate by requiring it to support maximum sustainable employment as well as maintain price stability.
“In the reviewers’ words ‘these amendments downplayed the importance of price stability’ and ‘effectively mandated that the Bank should tolerate larger and longer lasting inflation deviations from target’.
“One of this Government’s first actions on taking office was to restore the Bank’s single focus on inflation, as the greatest contribution monetary policy can make to employment in the medium term is keeping inflation under control.
“The reviewers also welcomed changes made to the MPC charter earlier this year to encourage diversity of thought in MPC decision-making.
“Those changes include making committee members’ votes public when there is not consensus and making it easier for MPC members to discuss their views publicly.”
The review’s recommendations are primarily for the Reserve Bank and the MPC and focus on strengthening monetary policy decision-making under uncertainty.
“I expect the Bank to consider these recommendations carefully and report publicly on its response.
“The Government also acknowledges the review’s recommendations around the interaction between financial governance and monetary policy and will consider further advice.
“The COVID-19 pandemic constituted an unprecedented economic shock. It has taught New Zealand some painful lessons.
“It is important that we learn those lessons and do not repeat the mistakes of the past,” Nicola Willis says.
Note to Editors:
• Dr Orphanides is a former governor of the Central Bank of Cyprus and member of the Governing Council of the European Central Bank, and a professor of the Practice of Global Economics and Management at the Massachusetts Institute of Technology.
• Mr Archer is a former Reserve Bank assistant governor and former head of the Central Banking Studies Unit at the Bank for International Settlements.
• The independent review is available here: https://www.treasury.govt.nz/publications/commissioned-report/independent-review-monetary-policy-response-covid-19-pandemic
• Summary factsheet attached
Original source: https://nz.mil-osi.com/2026/09/22/lessons-to-be-learned-from-covid-response/