MNI BRIEF: RBNZ Should Have Tightened Earlier - Bank Review

The Reserve Bank of New Zealand policy approach during the pandemic was "largely warranted" but it should have tightened policy earlier in 2021 to head off inflation, according to an internal review of policy making over the past five years released Thursday. The Review and Assessment of the Formulation and Implementation of Monetary Policy found policy had been consistent with the RBNZ's objectives, with the dramatic easing in policy during the pandemic, ensuring "worst case scenarios were avoided."

Importantly, the report noted that even if policy was tightened earlier it wouldn't have "fully offset" the inflationary impulse from supply shocks, including Russia's invasion of Ukraine. The RBNZ has raised rates at eight consecutive meetings and may consider a 75bp hike at its November 23 meeting. (See MNI BRIEF: CPI Shock May Push 75bp Hike On To RBNZ Radar)

While the RBNZ's Additional Monetary Policy (AMP) tools, such as quantitative easing, were assessed to have restored functionality to the financial system, it was noted they had contributed to "higher-than-otherwise" economic activity and inflation. The Funding for Lending Program "could have been designed with more flexibility."