National leader Christopher Luxon has called for a public inquiry into the Reserve Bank's response to the Covid-19 response after a former governor added their voice to the criticism of the bank's Covid response.
It comes as the Reserve Bank Governor Adrian Orr took the unusual step of putting
out a statement responding to the level of criticism directed at the Bank, in particular a report by former governor Graeme Wheeler.
Orr acknowledged that inflation was above its target, and that the Bank's actions had contributed to that level of inflation.
Wheeler is not the only senior figure to criticise the Bank. Recently, former governors Don Brash and Grant Spencer, former chair Arthur Grimes and former chief economist John McDermott have all been critical of the Bank.
The main topic of criticism was the extent of monetary policy easing, which was achieved in part thanks to the printing of tens of billions of dollars of digital money.
Between March 2020 and the middle of 2021 the Reserve Bank printed $54 billion in digital money and sent it flooding through the economy. The idea at the time was to keep interest rates at record lows, which would help people and businesses keep borrowing and spending - this would support people's incomes and unemployment during the darkest days of the pandemic.
While this worked from the perspective of unemployment, it unleashed a wave of instability in the housing market: prices went crashing up, and earlier this year they came crashing down. Capping it off, consumer price inflation, which the Bank's current structure exists to control has soared beyond its target band of 1-3 per cent to 7.3 per cent.
Orr's response to Wheeler said he had received the report and he acknowledged that inflation was above the range targeted by the Bank.
"I also acknowledge that the Monetary Policy Committee's decisions over recent years have influenced this outcome. This acknowledgment is reflected in our regular Monetary Policy Statements and through our ongoing efforts to quell excess demand in the economy," Orr said.
National wants a public inquiry into the decisions the Reserve Bank took during the pandemic, with the obvious implication that the Bank might have overcooked its response.
"The Reserve Bank and the Government took unprecedented steps in 2020 and 2021 to pump money into the financial system. The massive and ongoing monetary and fiscal response unleashed a tidal wave of cash into New Zealand's economy," Luxon 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," he said.
The awkward thing about an inquiry into the Reserve Bank is that it could raise the allegation that politicians were interfering with the Bank's independence. The Bank's independence is so fiercely guarded that its responsible minister, Finance Minister Grant Robertson, never comments explicitly on whether he approves or disapproves of its actions.
Even a relatively unpolitical review of Australia's Reserve Bank, which is a broad review of its structure, similar to the review Labour presided over when it came to Government in 2017, has been criticised for potentially compromising the Reserve Bank of Australia's independence from politicians.
"National respects the independence of the Reserve Bank and seeks to uphold that independence. That must not stop us evaluating the performance of the Bank on behalf of the New Zealanders we serve," Luxon said.
"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. Quite simply, could the worst of today's inflation hangover have been avoided and if so, how can we stop it happening again?" he said.
Green MP Chlöe Swarbrick has also been calling for a review into the Reserve Bank's response to the pandemic, however her review is broader, looking at both the Bank's actions in terms of its monetary policy settings, and the Government's response, in terms of fiscal policy.
Swarbrick has been trying to get Parliament's Finance and Expenditure Committee to open such an inquiry, backed by Act and National, however Labour, which holds a majority on the committee, has been blocking the effort.
