RBNZ Governor Orr Admits MonPol Decisions Contributed To High Inflation

By Sophia Rodrigues

(Sydney, July 26, 2022)—The Reserve Bank of New Zealand governor Adrian Orr has acknowledged its monetary policy decisions have contributed to elevated inflation which is well above the remit target range of 1% to 3%.

In a statement Tuesday, Orr noted that consumer price inflation is currently at 7.3% and “that the Monetary Policy Committee’s decisions over recent years have influenced this outcome.”

The statement follows a research note released earlier Tuesday by The New Zealand Initiative which mainly attributed the outbreak of inflation in many economies to central bank mistakes.

The paper is co-authored by Graeme Wheeler, former RBNZ governor, and Bryce Wilkinson, senior research fellow at The New Zealand Initiative, with foreword from William White, former deputy governor at the Bank of Canada.

The paper argues that central banks overall:

--were too confident about their monetary policy framework;

--were too confident about their models;

--were too confident they could control output and employment;

--lost their focus on price stability and took on too many mandates;

--faced conflicts in some cases with conflicting ‘dual mandate’ objectives; and

--were distracted by extraneous political objectives, such as climate change.

Orr reminded the RBNZ is in the midst of the first ever five-yearly review of its monetary policy remit, and in addition to this, it will also review its recent performance in conducting monetary policy, including the use of additional monetary policy tools.

“This monetary policy review will assess inflation and employment outcomes relative to the targets outlined in the Remit, and the decisions taken at various times based on the information available at the time, relative to other central banks, and relative to likely alternative economic outcomes if these decisions had not been taken.”

--Contact: Sophia@centralbankintel.com