Made by Government: New Zealand’s Monetary Policy Mess

Dr Bryce Wilkinson
Research Note
16 March, 2023

Central banks, above all, are responsible for overseeing financial stability and controlling inflation.

Many central banks, including the Reserve Bank of New Zealand (RBNZ), have inadvertently fueled excessive inflation through their responses to Covid-19, resulting in massive losses on taxpayers. The RBNZ is credited with its In Retrospect review and the quality of its reviewers, but the outcomes for New Zealanders were poor, and the Bank needs to produce a credible demonstration of greater offsetting benefits for output and employment.

This research note suggests that the poor governance arrangements, conflicting goals, grandiose aspirations, and distractions, along with the excessive budget and lack of core expertise in key appointments, have created the current mess in the RBNZ. The current Governor's "extra-curricular" enthusiasms have heightened concerns about the Bank's focus and capabilities.

The research note concludes that a future government could turn the Bank around given enough Ministerial will, but it will not be in a hurry as credibility is hard to earn and easy to undermine.

The real message is for those who might form the next Government to pay serious attention to what changes they might make to reposition the Bank.

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