What the Reserve Bank got wrong and right with the Covid-19 response

The independent review of the monetary policy response to Covid-19 is here. It seems fair and balanced. The key takeaways are:

• MPC’s initial response was praiseworthy; rapid and, for New Zealand, innovative monetary accommodation was provided
• Reserve Bank and the banks were insufficiently well prepared for policy near zero interest rates
• As inflation accelerated away from target, MPC decided to stop adding stimulus, but without sufficient urgency
• Inflation rose as far as 7.3%, 5.3% above target, and the unemployment rate fell to 3.2%, an unsustainable historic low,necessitating a costly reduction in economic growth and employment to restore stability
• The law was altered to introduce a Dual Mandate, adding scope for discretion and guiding the MPC to focus less on price stability
• the combined stimulus, while appropriate in the early stages, was too strong for too long

So Labour’s introduction of a dual mandate was a contributing factor to the high inflation we had, along with the RB being too slow to act as inflation started to increase.