A new report by The New Zealand Initiative examines the mess the Government/Minister of Finance and the Reserve Bank of New Zealand (RBNZ) have made of monetary policy. Inflation is once more a real problem, property prices have whiplashed and taxpayers have lost $9 billion. The prospect of recession is real.

The report, titled Made by Government: New Zealand’s Monetary Mess, was written by Dr Bryce Wilkinson, Senior Fellow at The New Zealand Initiative.

It documents the Government’s role in distracting the Bank from what should be its core mandate of maintaining price stability.

The government has compromised the price stability objective by adding contending objectives. Appointment to key monetary policy positions on the basis of merit and expertise has been sidelined. Expertise is now lacking.

Money was too loose for too long because the Bank’s inflation forecasts were badly wrong. Applying expertise to prevent that from happening again should be a real priority, but employment growth has been focused elsewhere, and the Governor has said he has ‘no regrets’ about the debacle.

Dr Wilkinson sees little hope for real change before the next general election. He sees the next government as having a big job to do to refocus the Bank on price stability and on hiring deep expertise where it is most needed.
 

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