Jenee Tibshraeny: NZ Herald Wellington business editor on the Reserve Bank modelling finds Covid-era money printing didn't cause inflation to spike

The Reserve Bank recently disputed the idea that Covid-era money printing programme caused sky-high inflation, which cost the Government billions.

Staff at the bank have published new research that concludes the bank’s $55 billion Large-Scale Asset Purchase (LSAP) programme didn’t 'meaningfully' contribute to above-target inflation following the pandemic.

NZ Herald Wellington business editor Jenee Tibshraeny explained further.

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Do you remember how the Reserve Bank printed huge amounts
of money during COVID. This was the so called Large
Scale Asset Program, which was worth fifty five billion dollars.
The Bank has just published new research that concludes that
none of it meaningfully contributed to our huge inflation problem, because,
of course not. Jane Tipsrani is The Herald's Wellington Business
editor and after a very long period away is back
with us. Hello Jane, Hi, Heather, welcome back. Now do

(00:22):
we buy this argument from Paul Conway?

Speaker 2 (00:25):
Yeah? Look, I mean I'm no expert, but I'll explain
the thinking. So at the pandemic, as you said before,
the Reserve Bank effectively created fifty five billion dollars, used
that money to help keep interest rates down, tried to
stimulate the economy. Of course, in twenty twenty one twenty
twenty two, we had huge inflation. Now a lot of us,

(00:49):
you know, would point the finger at the whole government
Reserve Bank response, But often there's been this narrative that
the money printing part was a major contributing factor. Now
Conway and staff at the Reserve Bank said actually no,
like yes, it had an effect, but not a huge effect.
The reason is because that program largely affected the exchange rate,

(01:13):
so it weakened the New Zealand dollar. That helped exporters,
and that boosted the economy. Basically, they're saying that, unlike
the OCR it didn't have a big effect on consumer demand.
So when the Reserve Bank cuts the OCR, that affects
short term interest rates, that makes people's mortgages cheaper and
gets them out in the economy spending more. That has

(01:35):
more of a direct impact on economic demand and therefore inflation.
So Paul Conway is saying, look, you know, money printing
isn't perfect, lots of downsides, but we should be weary
of pointing to that and isolating it and saying, don't
never do that again, because it's the reason we had
large inflation.

Speaker 1 (01:55):
Do we also buy the argument that even though they
lost nearly eleven billion dollars, it was okay because it
drove up the tax take for the government, so it
paid for itself.

Speaker 2 (02:03):
Yeah. Look, this has been a issue that I've had for
some time. Basically because of the mechanics of the money
printing it it came at a direct cost to the
government of about nearly eleven billion dollars that's a lot
of money, right, But the Reserve Bank is saying that
actually the large show as a purchase program did stimulate

(02:23):
the economy. You know, that meant people paid more tax
and it also suppressed the interest rates that the government
paid for all the debt that it took out at
the time, and for the first time it tried to
put some numbers to that. Now, it's very hard to
put numbers to that to say, you know, the government
has been did all the stimulus, Now which part of
the stimulus are we putting down just to this one program?

(02:46):
And then looking at the costs and saying, well, what,
you know, how did that benefit the government? The Bank
has done that for the first time and it said
it's concluded that the costs and the benefits direct costs
and direct gain to the government in terms of money
were about the same. So while we talk a lot
about this eleven billion dollar cost, they say that the

(03:08):
tax revenue and the lower interest costs that the government
faced were about worth the same.

Speaker 1 (03:14):
I mean, the I've got here, Jane, is that they're
marking their own homework, right, and so everybody's gonna look
at it a fair explanation, but actually you'd like somebody
independent to give, you know, to do a similar exercise,
wouldn't you.

Speaker 2 (03:26):
Yes, And the Reserve Bank did d a review of
its response and publish those findings in twenty twenty two,
and it had them pair reviewed. But I have been
calling for some time for just, you know, for them
to try to do the maths and to say well,
this was the cost and this was the direct benefit.
I mean, it's kind of baffling that it's taken this

(03:46):
long to get to this conclusion, and it's kind of
I mean, it's it's kind of unfortunate because all this
time there has been this narrative that this that money
printing is a terrible thing because look at the effect
and look at the cost. I think that what Paul
Conways tried to do here is to say, yes, you know, sure,
but here's a more nuanced discussion and here's some modeling

(04:09):
and here's some figures. So I think that the bank
can be commended for that.

Speaker 1 (04:13):
Yeah, brilliant. I thank you very much.

Speaker 2 (04:14):
Jane.

Speaker 1 (04:14):
It's nice to have you back. The janejab Training of
The Herald in Wellington.

Speaker 2 (04:19):
For more from Heather Duplessy, Allen Drive, listen live to
news talks.

Speaker 1 (04:22):
It'd be from four pm weekdays, or follow the podcast
on iHeartRadio