Perspective with Heather du Plessis-Allan: We need to talk about how the Reserve Bank stuffed up

Now, we need to talk about the Reserve Bank's excuses for how it completely stuffed up its job and let inflation get away on it during Covid.

We spoke about this on the show yesterday, it's done the review and it says, quote, - "in hindsight, an earlier and more aggressive tightening might have reduced inflation sooner."

Yeah. Really, Sherlock? 

But this would have been difficult given the data available at the time.

Now, basically what they're saying is: yeah, we could have done better if we could see what was happening at the time, but we couldn't see what was happening at the time.

Which is a crock, isn't it? Because there were people who could see at the time what was happening, and they said so.

They said it publicly, they said the Reserve Bank needs to start tightening up - in some cases, months, if not even more than a year, before they did.

I mean, the New Zealand Initiative first identified that Covid could cause inflation in April 2022 - that's a year and a half before the Reserve Bank started tightening.

Brad Olsen called on them to start lifting the OCR in July 2021, that's about three months before they started. They started in October 2021.

Now, that's good on them for - at that point - starting to move, but they were doing it.

They were pumping the brake ever so slightly while still pushing the accelerator in a big way, because they did not stop pumping the economy and they kept their cheap money for banks program going all the while.

In February 2022, the following year, the New Zealand Initiative was warning them and saying - hey, listen, this inflation is a thing here.

But that lending continued, that cheap money to the banks continued all the way through to December 2022. When it stopped, inflation was already at 7.2 percent, which is nutso.

Now, to be fair to the Reserve Bank, it wasn't just their fault.

Grant Robertson was doing a fair bit, right? He was spending like crazy, and even though he was warned by Treasury, he just kept on spending too.

But that doesn't exonerate the Reserve Bank, it just makes their job harder.

But they cannot pretend that they didn't see what was happening, because others did see what was happening, and they needed to see what was happening - because that is what they are paid for.

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Episode Transcript

Speaker 1 (00:00):
Now we need to talk about the Reserve Bank's excuses
for how it completely stuffed up its job and let
inflation get away on it during COVID. We spoke about
this on the show yesterday. It's done the review. It says,
quote in hindsight and earlier and more aggressive tightening might
have reduced inflation sooner. Yeah, rarely, Sherlock. But this would

(00:20):
have been difficult given the data available at the time. Now,
basically what they're saying is, yeah, we could have done
better if we could see what was happening at the time,
but we couldn't see what was happening at the time.
Which is a croc, isn't it? Because there were people
who could see at the time what was happening, and
they said so, they said it publicly, they said the
Reserve Bank needs to start tightening up. In some cases months,
if not even more than a year before they did.

(00:42):
I mean, the New Zealand Initiative first identified that COVID
could cause inflation in April twenty twenty two, that's a
year and a half before the Reserve Bank started tightening.
Brad Olsen called on them to start lifting the OCR
in July twenty twenty one. That's about three months before
they started. They started in October twenty twenty one. Now
that's good on them for at that point starting to move,

(01:04):
but they were doing it. They were pumping the brake
ever so slightly while still pushing the accelerator in a
big way. Because they did not stop pumping the economy.
They kept their cheap money for banks program going all
the while. In February twenty twenty two, the following year,
the New Zealand Initiative was warning like, hey listen, this
inflation is a thing here, but that lending continued, That
cheap money to the banks continued all the way through

(01:25):
to December twenty twenty two, when it stopped. Inflation was
already at seven point two percent, which is nuts. Now.
To be fair to the Reserve Bank, it wasn't just
their fault. Grant Robertson was doing a fair bit right.
He was spending like crazy, and even though he was
worn by Treasury, he just kept on spending too. But
that doesn't exonerate the Reserve Bank. It just makes their

(01:46):
job harder. But they cannot pretend that they didn't see
what was happening, because others did see what was happening,
and they needed to see what was happening because that
is what they are paid for for. More from Heather
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