National calls for review of Reserve Bank's role in cost-of-living crunch
Tuesday, 26 July 2022
The National Party is calling for an inquiry into how a “tidal wave of cash” poured into the economy and caused the current cost of living crisis.
Party leader Christopher Luxon said the Reserve Bank and the Government had taken “unprecedented” steps to pump money into the financial system in an attempt to shore up the economy when the pandemic struck.
“The massive and ongoing monetary and fiscal response unleashed a tidal wave of cash into New Zealand’s economy,” he said.
“The Government should initiate an independent public inquiry into the Reserve Bank’s monetary policy response from March 2020 until late 2021, to better understand the lasting impact of key decisions, the length of stimulus and any lessons that can be learned for the future.”
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Luxon said it would not be credible for a review to be led by the Reserve Bank or government agencies.
“New Zealanders deserve an independent appraisal of the decision-making during this extraordinary time. Households struggling through a cost of living crisis need assurance that economic decision makers are doing everything possible to prevent a repeat,” he said.
“Quite simply, could the worst of today’s inflation hangover have been avoided and if so, how can we stop it happening again?
“The terms of reference for this inquiry should be drafted in consultation with parties across Parliament. A key question will be the roles the finance minister and the Treasury took in both facilitating the Reserve Bank response and co-ordinating with it.
“The inquiry should be time-bound, to ensure public scrutiny of its outcomes prior to the appointment process for the Reserve Bank governor, which is required ahead of the end of Adrian Orr’s current term in March next year.
“It’s important that New Zealanders have confidence in the country’s economic and fiscal settings and that lessons are taken from recent extraordinary actions.”
National Party deputy leader Nicola Willis said the inquiry should look at things like whether the Reserve Bank’s programme of large-scale asset purchases and funding for lending, together with low interest rates, were “over-stimulatory” for the economy combined with the fiscal stimulus being provided by the Government.
“What’s the proper co-ordination between the Reserve Bank and the Government? Both of whom were pumping the money hose at the same time, and New Zealanders are now bearing the consequences.”
Finance Minister Grant Robertson said Luxon should remember what his party said through 2020 and 2021.
“Most New Zealanders supported the reasons that we had to intervene both at a fiscal and monetary policy sense. There will always be lessons to learn, it’s important to learn those, but I don’t think Luxon has any moral high ground on this particular issue.
“There will inevitably be the space for us to look at all manner of aspects of the response, and I’m sure the Reserve Bank will do its bit … The point I’m making here is that I vividly remember calls from the National Party to spend more money than we did supporting businesses.”
The Reserve Bank has been under increasing scrutiny in recent times.
Former governor Graeme Wheeler co-authored a report, released on Tuesday, with New Zealand Initiative research fellow Bryce Wilkinson that accused central banks of errors of judgment in overdoing interest rate cuts and in their policies of quantitative easing.
Earlier, former Reserve Bank chairman Arthur Grimes described the Reserve Bank as “incompetent” and having made mistakes that caused interest rates to rise.
And former monetary policy committee member Rodney Dickens said the Reserve Bank was hiking rates too quickly without waiting to see the impact it would have.