New Zealand's COVID Stimulus Maintained for Too Long

Wellington (ANTARA) - The Reserve Bank of New Zealand has been judged to have been too slow in withdrawing monetary policy stimulus after the economy recovered more strongly than expected following the COVID-19 pandemic, according to an independent review released on Tuesday (22/9).

The evaluation report, released by New Zealand Finance Minister Nicola Willis, examined monetary policy decisions from 1 January 2020 to 31 December 2022. It found that while the central bank’s initial response to the pandemic was appropriate and effective, monetary policy stimulus was maintained for too long.

The review was conducted by Professor Athanasios Orphanides of the Massachusetts Institute of Technology in the United States and former Deputy Governor of the Reserve Bank of New Zealand, David Archer.

According to a statement from the New Zealand Government, the review aimed to identify lessons that could be learned to improve responses to economic shocks in the future.

Prolonged stimulus, amidst conditions of economic overheating, contributed to harmful and high-cost boom-bust cycles, Willis stated in her announcement.

Inflation reached 7.3 per cent, and unemployment fell to what the reviewers described as an “unsustainable historic low,” while efforts to rein in inflation required significant monetary tightening, which in turn increased unemployment and hindered growth, Willis said.

“The COVID-19 pandemic was an unprecedented economic shock. This phenomenon has provided several bitter lessons for New Zealand,” she remarked.

Recommendations in the review focus on strengthening monetary policy decision-making amidst uncertainty.

Reserve Bank of New Zealand Governor Anna Breman stated that officials will carefully analyse the review report and utilise its findings to help determine future policy.