New Zealand's Treasury has released Cabinet material detailing the government's response to an independent review of monetary policy decisions and supporting analysis from January 2020 to December 2022. The review found that the Monetary Policy Committee's initial response was appropriate and effective, but stimulus remained in place too long after the economy recovered more strongly than forecast. It attributed the delayed adjustment mainly to excessive reliance on medium term forecasts and insufficient use of incoming data, near term inflation signals, real interest rates and scenario analysis. The review found that the initial Large Scale Asset Purchase programme helped restore government bond market functioning, but purchases continued after that objective had been achieved. It also questioned the need for the Funding for Lending Programme when bank funding conditions were already supportive. Its operational recommendations call for a more systematic monetary policy strategy, policy rule cross checks, broader scenarios, better readiness for additional tools and stronger challenge and diversity of views within the Monetary Policy Committee. Cabinet agreed to commission further advice on a potential conflict between the Monetary Policy Committee's ability to deploy balance sheet tools and the Reserve Bank Board's and minister's responsibilities for Crown financial risk. It has not committed to legislative change or a particular solution. The Reserve Bank is expected to consider the operational recommendations and report publicly on its response, while Treasury will develop principles for the use, timing and withdrawal of fiscal tools during economic shocks.

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