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Reserve Bank Could Have Responded Quicker To Tackle Covid Inflation, New Report Says

Monday, 29 September 2025, 9:01 pm
Article: RNZ

Gyles Beckford, Business Editor

RBNZ could have been earlier or more aggressive to tackle inflation - report
Review shows actions anchored inflation expectations
Monetary policy struggled between tackling inflation and supporting employment
Monetary policy had to do more because of government Covid-19 spending.

The Reserve Bank could have moved more quickly or aggressively to counter rampant inflation during the pandemic, but struggled against conflicting forces, according to a new report.

The central bank has reviewed how it handled monetary policy - setting interest rates to manage inflation and supporting employment - between 2021 and 2024, which included the response to the pandemic.

In that period the official cash rate (OCR) was reduced to 0.25 percent by October 2021, but then rapidly increased to 5.5 percent by May 2023 as inflation surged to 7.3 percent by late 2022.

RBNZ chief economist Paul Conway said policy had the rate rises had helped to contain inflation and get it back into the 1-3 percent target band, but could have been quicker.

"In hindsight, an earlier or more aggressive tightening might have reduced inflation sooner," Conway said.

"But this would have been difficult given the data available at the time and could have conflicted with the MPC's (monetary policy committee) mandate back then, which included maintaining maximum sustainable employment."

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The employment mandate was brought in by the Labour-led government in 2018, but scrapped by the National-led coalition in 2023 with the RBNZ instructed to have a sole focus of controlling inflation.

The RBNZ was strongly criticised by some commentators for being too slow to recognise inflation was getting out of control as cheap money was inserted into the economy to support activity and employment, leading to an overheated property market as well.

In the process, former Governor Adrian Orr said it was necessary to "engineer" a recession to get inflation back under control.

Conway said the central bank used the best available information to guide decisions and that the accuracy of the Reserve Bank's economic forecasts has significantly improved.

The report also highlighted that the RBNZ's monetary policies were having to contend with free spending government policies aimed at supporting businesses and wages, and the need for better co-ordination between the RBNZ and Treasury.

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