RBNZ Review Finds Stimulus Was Left Running Too Long After COVID-19 Recovery

An independent review of the Reserve Bank of New Zealand's (RBNZ) COVID-19 response has found that the bank kept monetary stimulus running for too long after the economy recovered faster than expected.

The review, conducted by MIT Professor Athanasios Orphanides and former RBNZ Assistant Governor David Archer, examined decisions made by the Reserve Bank's Monetary Policy Committee (MPC) from 1 January 2020 to 31 December 2022.

While the initial response was deemed appropriate, with the OCR cut to 0.25% and large-scale asset purchases deployed, the review found that policy did not adjust quickly enough as the economy recovered faster than anticipated.

The RBNZ was slow to withdraw stimulus, leading to excess demand and inflation reaching 7.3%, which was 5.3% above target.