The New Zealand Treasury has published an independent review of Reserve Bank of New Zealand Monetary Policy Committee decisions from January 2020 through December 2022. The review finds that the initial rapid easing and use of large scale asset purchases were appropriate, but stimulus remained in place too long as the economy recovered more strongly than forecast. Policy was slow to respond to positive data and rising inflation, contributing to severe overheating as inflation reached 7.3% and unemployment fell to an unsustainable 3.2%, followed by a costly tightening cycle. The reviewers attribute the errors mainly to vulnerabilities in the monetary policy framework rather than data limitations or individual decision makers. These included excessive reliance on medium term forecasts, insufficient attention to real interest rates and near term inflation, reduced scenario analysis, broad discretion and arrangements that did not adequately encourage diverse policy views. They also find that large scale asset purchases were expanded beyond what was needed, negative interest rates were not operationally ready, and the Funding for Lending Programme had doubtful merits when bank funding markets were functioning well. The review recommends a more systematic strategy with less discretion, publication of implied real Official Cash Rate paths, greater use of near term indicators, broad scenarios and simple policy rules as cross-checks. It also calls for regular testing of alternative monetary policy tools, explicit allowance for likely fiscal responses in forecasts, stronger support for diverse Monetary Policy Committee views and reconsideration of statutory provisions that could allow financial constraints or the Reserve Bank board to prevent implementation of monetary policy. The report is an external review and does not represent government policy.
2026-09-22Treasury (New Zealand)
New Zealand Treasury publishes independent review finding COVID-19 monetary stimulus was excessive and withdrawn too late
The New Zealand Treasury has published an independent review finding that the Reserve Bank’s initial COVID-19 response was appropriate but monetary stimulus was excessive and withdrawn too late. The review links the resulting overheating and 7.3% inflation peak to framework weaknesses, including reliance on medium term forecasts, insufficient scenario analysis and inadequate focus on real interest rates. It recommends a more systematic policy strategy, stronger analytical safeguards and regular readiness testing for alternative monetary tools.