1 00:00:00,240 --> 00:00:02,720 Speaker 1: Now Finance Minister Nichola Willis, as I told you just 2 00:00:02,800 --> 00:00:05,240 Speaker 1: a minute ago, has announced this inquiry into the monetary 3 00:00:05,240 --> 00:00:08,440 Speaker 1: policy response from the Reserve Bank during the COVID pandemic. 4 00:00:08,840 --> 00:00:11,239 Speaker 1: While yes, it absolutely did help keep a lot of 5 00:00:11,280 --> 00:00:14,120 Speaker 1: businesses afloat the impacts have been catastrophic and we are 6 00:00:14,120 --> 00:00:16,360 Speaker 1: still suffering them at the moment. The former Reserve Bank 7 00:00:16,400 --> 00:00:18,400 Speaker 1: senior economist Michael Riddell's had a lot to say on 8 00:00:18,440 --> 00:00:20,800 Speaker 1: the subject and it is with us now afternoon. Michael, 9 00:00:21,560 --> 00:00:26,279 Speaker 1: am I right in thinking that you would welcome this, Yes. 10 00:00:26,160 --> 00:00:28,840 Speaker 2: But more or less. But I mean this was an 11 00:00:28,880 --> 00:00:32,040 Speaker 2: inquiry that was promised by National when they came into office. 12 00:00:32,159 --> 00:00:34,080 Speaker 2: And you know we're three years on now. All the 13 00:00:34,200 --> 00:00:36,600 Speaker 2: key people who are involved and moved on to different jobs. 14 00:00:36,640 --> 00:00:40,480 Speaker 2: So yeah, you know, we'll get some outside independent observers 15 00:00:40,560 --> 00:00:42,880 Speaker 2: and they'll offer us a few thoughts. They probably won't 16 00:00:42,880 --> 00:00:46,080 Speaker 2: tell us anything that we don't already know, so it's 17 00:00:46,120 --> 00:00:47,839 Speaker 2: better than nothing. But it is two years too late. 18 00:00:48,520 --> 00:00:50,800 Speaker 1: Even though the people who've move that, the key people 19 00:00:50,840 --> 00:00:53,040 Speaker 1: have moved on to other jobs. Is it not possible 20 00:00:53,040 --> 00:00:54,920 Speaker 1: that they're still able to be talked to about this? 21 00:00:56,320 --> 00:00:58,200 Speaker 2: I certainly expect so. And I mean, I gave the 22 00:00:58,200 --> 00:01:00,160 Speaker 2: reviewers are coming to New Zealand for a week to 23 00:01:00,640 --> 00:01:02,720 Speaker 2: talk to a variety of people who they've already asked 24 00:01:02,720 --> 00:01:04,240 Speaker 2: to talk to me, and i'd happen they go along 25 00:01:04,240 --> 00:01:06,040 Speaker 2: and give them my views. 26 00:01:06,480 --> 00:01:07,759 Speaker 1: What are your views? 27 00:01:08,640 --> 00:01:10,840 Speaker 2: My views are a bit next. I mean, I think 28 00:01:10,880 --> 00:01:14,640 Speaker 2: the early reaction of the bank to cut interstraits in 29 00:01:14,800 --> 00:01:18,520 Speaker 2: March twenty twenty was pretty much the best guests that 30 00:01:18,520 --> 00:01:20,520 Speaker 2: could be taken. At the time. There's got reason to 31 00:01:20,560 --> 00:01:22,400 Speaker 2: think that the economy would be very weak. You know, 32 00:01:22,440 --> 00:01:24,040 Speaker 2: we'd lost the terrorism and people are going to be 33 00:01:24,160 --> 00:01:26,840 Speaker 2: very uncertain and all those sorts of things. Inflation would 34 00:01:26,880 --> 00:01:29,480 Speaker 2: be very low. The big mistake wasn't that. The big 35 00:01:29,520 --> 00:01:32,360 Speaker 2: mistake was not recognizing quickly enough that actually that was 36 00:01:32,400 --> 00:01:35,840 Speaker 2: the wrong story. That the economy had rebounded pretty quickly 37 00:01:35,840 --> 00:01:37,680 Speaker 2: in New Zealand, and when it rebounded and there were 38 00:01:37,720 --> 00:01:41,280 Speaker 2: still constraints on the ability to supply goods, there was 39 00:01:41,280 --> 00:01:43,920 Speaker 2: going to be pressure on prices. And instead they've got 40 00:01:43,920 --> 00:01:47,440 Speaker 2: the worst inflation in decades, as well as losing that 41 00:01:47,440 --> 00:01:50,160 Speaker 2: ten billion dollars on their speculations in the bond market. 42 00:01:50,200 --> 00:01:52,000 Speaker 1: It was the game carry on. 43 00:01:52,760 --> 00:01:55,040 Speaker 2: So again, the interventions in the bond market in the 44 00:01:55,040 --> 00:02:00,640 Speaker 2: first few weeks may have been plausibly reasonable. Quickly it 45 00:02:00,640 --> 00:02:03,960 Speaker 2: became apparent that things were normalizing here or more quickly 46 00:02:03,960 --> 00:02:06,680 Speaker 2: than anyone who allowed for. And yet the bank kept 47 00:02:06,720 --> 00:02:10,200 Speaker 2: on punting, kept on taking bigger positions, and once interest 48 00:02:10,280 --> 00:02:13,919 Speaker 2: rates started rising, bond prices fell sharply. And that's ten 49 00:02:13,919 --> 00:02:16,160 Speaker 2: billion dollars that we could have spent on hospitals or 50 00:02:16,560 --> 00:02:19,680 Speaker 2: you know, anything worthy public expenditure that's just gone now. 51 00:02:19,919 --> 00:02:22,720 Speaker 1: Okay, So everything that happened at the start was fair enough. 52 00:02:22,720 --> 00:02:24,760 Speaker 1: It's the problem with the problem appears to be the 53 00:02:24,840 --> 00:02:27,119 Speaker 1: duration of the response. Do you have any idea as 54 00:02:27,120 --> 00:02:28,480 Speaker 1: to why they just kept on going. 55 00:02:30,000 --> 00:02:33,160 Speaker 2: It's basically forecasting era. I mean, they just they And 56 00:02:33,200 --> 00:02:35,120 Speaker 2: in fairness, I would say that what the reviewers will 57 00:02:35,160 --> 00:02:37,080 Speaker 2: find is that their mistake was very similar to that 58 00:02:37,120 --> 00:02:41,560 Speaker 2: made by central banks around the world. Didn't appreciate quite 59 00:02:41,600 --> 00:02:44,760 Speaker 2: how the economy was behaving during COVID. So if you 60 00:02:44,760 --> 00:02:46,960 Speaker 2: look at their forecasts, for example, a year on I 61 00:02:47,280 --> 00:02:50,440 Speaker 2: lived in this morning, the February monitory Bossy statement in 62 00:02:50,480 --> 00:02:53,520 Speaker 2: twenty twenty one, they still thought that ideally interest rates 63 00:02:53,560 --> 00:02:56,079 Speaker 2: would be negative for the next two years. In fact, 64 00:02:56,160 --> 00:02:58,240 Speaker 2: by that point they already probably should have been two 65 00:02:58,280 --> 00:03:04,079 Speaker 2: percent gourably higher. So you know, it wasn't political, It 66 00:03:04,120 --> 00:03:08,600 Speaker 2: wasn't intension to generate high inflation. It was just badly 67 00:03:08,639 --> 00:03:12,160 Speaker 2: misreading the economy. Now, is that excusable? Yes, in part 68 00:03:12,200 --> 00:03:15,320 Speaker 2: because we hadn't had a pandemic like this forever. I mean, 69 00:03:15,360 --> 00:03:18,160 Speaker 2: it was much worse than the nineteen eighteen one in 70 00:03:18,240 --> 00:03:22,280 Speaker 2: terms of its economics. But we delegate these powers to 71 00:03:22,400 --> 00:03:25,120 Speaker 2: supposed experts, and the real pressure on experts is how 72 00:03:25,120 --> 00:03:27,639 Speaker 2: they cope in a crisis. Our central bank is here 73 00:03:27,680 --> 00:03:28,720 Speaker 2: and abroad didn't cope. 74 00:03:28,720 --> 00:03:31,560 Speaker 1: Well, there is some value, isn't there in going back, 75 00:03:31,600 --> 00:03:33,040 Speaker 1: even though, as you say, a lot of the key 76 00:03:33,040 --> 00:03:35,040 Speaker 1: people have moved on and we kind of basically know 77 00:03:35,160 --> 00:03:37,280 Speaker 1: what the mistakes were. There is value in having an 78 00:03:37,280 --> 00:03:40,000 Speaker 1: independent inquiry saying these are the mistakes, because you still 79 00:03:40,040 --> 00:03:43,280 Speaker 1: have Paul Conway, the chief executive, going out there and saying, ah, 80 00:03:43,360 --> 00:03:45,920 Speaker 1: the long the you know, the l SAP wasn't that 81 00:03:45,920 --> 00:03:47,960 Speaker 1: big a deal because it basically paid for itself. So 82 00:03:48,000 --> 00:03:50,440 Speaker 1: it seems like there's still some excuses being made. 83 00:03:50,800 --> 00:03:54,280 Speaker 2: No, that is definitely true. And you know, poor Conway 84 00:03:54,320 --> 00:03:57,280 Speaker 2: and Christian Hawksby before I left last year, were prey 85 00:03:57,280 --> 00:04:01,080 Speaker 2: egregious in that regard. So yeah, you know, hopefully it 86 00:04:01,120 --> 00:04:04,520 Speaker 2: can contribute to the debate in that way. I mean, 87 00:04:04,560 --> 00:04:07,520 Speaker 2: I think people recognize that the Reserve Bank has not 88 00:04:07,560 --> 00:04:11,680 Speaker 2: particularly been a learning organization in recent times. We've talked 89 00:04:11,720 --> 00:04:15,160 Speaker 2: last year about the defensiveness around Adrianaw's departure and the 90 00:04:15,200 --> 00:04:17,920 Speaker 2: misrepresentations that Adrian and Neil quickly had made and those 91 00:04:17,960 --> 00:04:21,080 Speaker 2: sorts of things, and the same thing's going on. Whether 92 00:04:21,160 --> 00:04:25,080 Speaker 2: a report by a couple of technocrats years on has 93 00:04:25,160 --> 00:04:27,720 Speaker 2: much impact on that public debate, I don't know, but 94 00:04:27,839 --> 00:04:30,000 Speaker 2: you know it can't do any harm. These are two 95 00:04:30,080 --> 00:04:32,040 Speaker 2: good guys, you know, one of them was my former boss, 96 00:04:32,120 --> 00:04:35,680 Speaker 2: David Archer, and I expect that we'll get a good 97 00:04:35,680 --> 00:04:37,240 Speaker 2: technocratic report out of it. 98 00:04:37,279 --> 00:04:38,880 Speaker 1: Michael's always good to talk to you. Thank you for 99 00:04:38,920 --> 00:04:42,280 Speaker 1: your time. That's Michael Rodelle, former Reserve Bank senior economists. 100 00:04:42,279 --> 00:04:45,480 Speaker 1: For more from Hither Duplessy Alan Drive, listen live to 101 00:04:45,560 --> 00:04:48,599 Speaker 1: news talks they'd be from four pm weekdays, or follow 102 00:04:48,640 --> 00:04:50,400 Speaker 1: the podcast on iHeartRadio.