Finance Minister Nicola Willis has ordered a review into the Reserve Bank's pandemic-era monetary policy.
During the Covid-19 period, the Reserve Bank slashed the official cash rate (OCR) – which influences mortgage rates and broader borrowing costs – to a record low.
The central bank also launched a large-scale asset purchase programme, a form of quantitative easing where it buys government bonds to inject money into the economy.
Willis said those actions helped save jobs and businesses, but came with significant consequences. Criticism has long been levelled at the Reserve Bank for its choices, which some blamed for a deeper economic rut in more recent times.
"The purpose of the review is to learn from experience," Willis said. "An independent review means the conclusions found can be objective and constructive."
The review was expected to finish in August and be released the following month.
Willis said the review would identify lessons, "New Zealand could learn to improve the monetary policy response to future major events".
Willis said: “The Reserve Bank took unprecedented action in response to the Covid-19 pandemic. This included reducing the OCR to 0.25% and the use of additional monetary policy tools, including a large-scale asset purchase (LSAP) programme.
"These actions helped to preserve jobs and keep businesses afloat, but the indirect impacts included decades-high inflation, and losses of about $10.3 billion on the LSAP programme and a significant spike in asset values with house prices increasing 30% in one year."
Government announcements blanketed the airwaves after the lockdown was announced. (Source: Supplied)
LSAP was a form of bond-buying, also known as quantitative easing, and which is colloquially referred to as money-printing.
The review will focus on decisions by the monetary policy committee, which sets interest rates, and on Reserve Bank analysis provided to support those decisions.
This includes monetary policy committee decision-making and communication, the use of additional monetary policy tools, and the coordination of monetary and fiscal policy.
Who will lead the review?
Athanasios Orphanides and David Archer have been appointed to conduct the review. Orphanides was a former governor of the Central Bank of Cyprus and member of the Governing Council of the European Central Bank, and a professor of the Practice of Global Economics and Management at the Massachusetts Institute of Technology.
Archer was a former NZ Reserve Bank assistant governor and former head of the Central Banking Studies Unit at the Bank for International Settlements.
The official cash rate had been at a historic low during the pandemic before the Reserve Bank began rapidly hiking it in late 2021 to combat surging inflation.
While in Opposition, Willis called for an independent review of the Reserve Bank after former governor Adrian Orr was re-appointed by the previous Labour government in 2022.
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