Sharon Zollner: ANZ Chief Economist on the report on the Reserve Bank's handling of Covid inflation

The Reserve Bank's conceded earlier or more aggressive OCR hikes may have reduced inflation sooner. 

It's been reviewing its response to the recent three-year period of high inflation. 

Chief Economist Paul Conway says the central bank was also required to maintain maximum sustainable employment. 

It had limited data and less accurate forecasts due to Covid uncertainty. 

ANZ Chief Economist Sharon Zollner told Mike Hosking the bank will absolutely draw lessons from the report, just as they did with things like the Christchurch earthquake. 

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Episode Transcript

Speaker 1 (00:00):
You report from the Reserve Bank, as mentioned by Andrew
a couple of moments ago, basically marking their own homework
on its performance on monetary policy between twenty twenty one
and twenty twenty four. Yes, the fabulous COVID years. Turns
out they could have moved faster to deal with inflation.
They suggest the government's free spending policies make that job harder.
They also want better coordination with the Treasury. Sharon's on
rosanned and said chief Economus back with us, Sharon morning,

(00:23):
good morning. Anything here that isn't fairly obvious, Well.

Speaker 2 (00:27):
Everything's obvious in hindsight, isn't it. I guess that's kind
of the main theme of the document, and it is
fair enough, I suppose. I thought it was actually really
useful to see a much fuller, transparent and honest discussion
about what they got right, what they got wrong, why
they made the choices they made. Whereas up to this
point we've sort of just heard, Ah, we could have

(00:48):
only moved one quarter earlier, and that wouldn't have made
any difference. Really, this is a much more useful discussion.

Speaker 1 (00:54):
I thought, Okay, the line about employment, In other words,
they had a mandate to save jobs. When everything's closed
and locked down, the only way to save jobs is
to throw money at it, which is essentially what they
were doing, was it.

Speaker 2 (01:08):
Yeah, there got some hints about the roles of fiscal
and monetary policy and events like this, and I think
it's a little bit like the earthquakes, which was primarily
a supply shock, or whether events like Hawk's Bay. I
think one of the lessons is that there are some
things that fiscal policy is just much better placed to
deal with. Primarily, we almost diagnosed COVID as an unfortunate term,

(01:32):
but primarily as a demand shock that people would be
really freaked out and stop spending, and therefore you needed
to really stimulate demand. But actually that the government of
the wage subjecty was extremely effective in that regard, and
there wasn't an awful lot more that was actually needed
with the benefit of hindsight, but obviously that was not

(01:52):
something you could reasiably know at the time. So given
that there was far too much stimulus from monetry, we
didn't need a housing bubble.

Speaker 1 (02:02):
No, exactly. Well now, so several things out of that
one when Adrian or gave all the money to the
banks at super cheap and didn't give them writing instructions
as to where that money could go. Was that a
mistake or not? In other words, people were always going
to take the money and put it into housing jet skis,
weren't they.

Speaker 2 (02:19):
Well, I don't think the Reserve Bank should be telling
banks where to lend eventually. I don't know, you're not
really well, you're entirely different sort of economy at that point,
should we say, But certainly, western benefit of hindsight, there
was quite too much stimulus of all kinds, including the
various non traditional monetary policy programs. I guess, you know,

(02:41):
the Reserve Bank lowered the OSI out of rock bottom
and said they were going to leave it there for
a year and then went looking for other ways to
stimulate the economy. And they certainly succeeded. But the primary
mistake was just underestimating I think the how effective the
fiscal policy was going to be at that time, and
we were all taken by surprise by that. I think

(03:03):
the way to subsidy was hugely expensive, obviously, but very
reassuring to people, and so people just got bored and
went shopping.

Speaker 1 (03:12):
Yes they did. I don't know if I'm making too
big a leap yesterday. But there's a story floating around
in Australia one of the banks saying people are saving
like they never had before. So two things out of that.
I just wonder if this whole commentary from the reserve
banks saying you know, look, look, look, your interest rates
are cheaper, go spend when people aren't this saving, and
whether that saving thing has come as a result of COVID.

(03:33):
So yes, we spent at the time, but now we've
worked out that wasn't the wisest thing, so now we're
saving more than spending.

Speaker 2 (03:39):
Well, basically during COVID, there was so much money being
thrown around that a lot of it did actually get saved.
We managed to save a lot of money and have
a housing groom at the same time, and that those
savings them sort of buffet spending when tough at times came.
But they're pretty much been. We don't have great data
on saving, but as far as we can tell, those
butterers have been eroded, so we're back to back to

(04:00):
the usual sort of pattern of things now, I would say,
But yeah, throughout the world there was a big spike
in saving because money was really being thrown at households
and firms for a while there, and some of it
London in bank accounts.

Speaker 1 (04:13):
You'll get to think the given we'd never dealt with
this before, that it was what it was. I don't
know whether we learn anything from it. It'll depend on
who the government of the day is, who the Reserve
bank governor of the day is, what country, year and
at the time. In other words, each each event will
unfold in its own way, and you can write reports
till you're blue in the face. Is not necessarily going

(04:33):
to change anything.

Speaker 2 (04:34):
Well, he's hoping we don't get another pandemic, but you
know the experts are saying the chance we will, and
I think absolutely they will draw lessons from it, just
like the lessons from the christ Church earthquake and other
events of that kind of like they're inflationary. So in
the Hawk's Bay, whether event came along and people are like, oh,
you need to cut interest rates, like no, no, that
would not be helpful. And similarly they've drawn listened to you.

(04:58):
If there's a wop and great way subsidy comes along
because of lockdown, then you don't need to do as
much with monetary policy. For example, there were also some
fairly stern words in there about fiscal policy and about
how it wasn't temporary, timely and targeted. It went on
and on, and that actually that legitimately meant that the
economy stayed overheated for longer and they had to raise

(05:21):
the oci buy more exactly.

Speaker 1 (05:23):
All right, Nice to talk to you, Sharon. As always,
Sharon's on out of the aims, and of course Treasury
said that at the time they said to the Reserve Bank,
Hay tighten up, and of course the Reserve Bank ignored women.
The rest, as they.

Speaker 2 (05:32):
Say, it's history.

Speaker 1 (05:33):
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