Reserve Bank of New Zealand research concludes pandemic LSAPs stabilised markets and largely offset their direct fiscal costs

The Reserve Bank of New Zealand published a speech by Mr Conway and accompanying research drawing lessons from COVID-19 on how monetary and fiscal policy interact in a crisis, including an assessment of the wider costs and benefits of the Large-Scale Asset Purchases (LSAPs) programme used to provide additional stimulus. The analysis finds LSAPs stabilised volatile financial markets and helped prevent inflation from undershooting the target midpoint. By supporting broader economic activity, the programme also contributed to higher government tax revenue, with the additional revenue largely offsetting LSAPs’ direct costs. Mr Conway argued LSAPs should remain a key tool for targeted interventions when the Official Cash Rate has reached its lower limit, while noting crisis management is likely to require a flexible, situation-specific mix of monetary and fiscal measures, with close coordination that stops short of joint decision-making to preserve independent monetary policy and keep inflation expectations anchored.