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Speaker 1: You report from the Reserve Bank, as mentioned by Andrew

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Speaker 1: a couple of moments ago, basically marking their own homework

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Speaker 1: on its performance on monetary policy between twenty twenty one

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Speaker 1: and twenty twenty four. Yes, the fabulous COVID years. Turns

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Speaker 1: out they could have moved faster to deal with inflation.

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Speaker 1: They suggest the government's free spending policies make that job harder.

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Speaker 1: They also want better coordination with the Treasury. Sharon's on

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Speaker 1: rosanned and said chief Economus back with us, Sharon morning,

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Speaker 1: good morning. Anything here that isn't fairly obvious, Well.

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Speaker 2: Everything's obvious in hindsight, isn't it. I guess that's kind

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Speaker 2: of the main theme of the document, and it is

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Speaker 2: fair enough, I suppose. I thought it was actually really

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Speaker 2: useful to see a much fuller, transparent and honest discussion

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Speaker 2: about what they got right, what they got wrong, why

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Speaker 2: they made the choices they made. Whereas up to this

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Speaker 2: point we've sort of just heard, Ah, we could have

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Speaker 2: only moved one quarter earlier, and that wouldn't have made

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Speaker 2: any difference. Really, this is a much more useful discussion.

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Speaker 1: I thought, Okay, the line about employment, In other words,

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Speaker 1: they had a mandate to save jobs. When everything's closed

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Speaker 1: and locked down, the only way to save jobs is

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Speaker 1: to throw money at it, which is essentially what they

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Speaker 1: were doing, was it.

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Speaker 2: Yeah, there got some hints about the roles of fiscal

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Speaker 2: and monetary policy and events like this, and I think

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Speaker 2: it's a little bit like the earthquakes, which was primarily

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Speaker 2: a supply shock, or whether events like Hawk's Bay. I

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Speaker 2: think one of the lessons is that there are some

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Speaker 2: things that fiscal policy is just much better placed to

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Speaker 2: deal with. Primarily, we almost diagnosed COVID as an unfortunate term,

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Speaker 2: but primarily as a demand shock that people would be

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Speaker 2: really freaked out and stop spending, and therefore you needed

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Speaker 2: to really stimulate demand. But actually that the government of

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Speaker 2: the wage subjecty was extremely effective in that regard, and

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Speaker 2: there wasn't an awful lot more that was actually needed

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Speaker 2: with the benefit of hindsight, but obviously that was not

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Speaker 2: something you could reasiably know at the time. So given

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Speaker 2: that there was far too much stimulus from monetry, we

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Speaker 2: didn't need a housing bubble.

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Speaker 1: No, exactly. Well now, so several things out of that

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Speaker 1: one when Adrian or gave all the money to the

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Speaker 1: banks at super cheap and didn't give them writing instructions

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Speaker 1: as to where that money could go. Was that a

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Speaker 1: mistake or not? In other words, people were always going

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Speaker 1: to take the money and put it into housing jet skis,

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Speaker 1: weren't they.

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Speaker 2: Well, I don't think the Reserve Bank should be telling

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Speaker 2: banks where to lend eventually. I don't know, you're not

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Speaker 2: really well, you're entirely different sort of economy at that point,

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Speaker 2: should we say, But certainly, western benefit of hindsight, there

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Speaker 2: was quite too much stimulus of all kinds, including the

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Speaker 2: various non traditional monetary policy programs. I guess, you know,

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Speaker 2: the Reserve Bank lowered the OSI out of rock bottom

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Speaker 2: and said they were going to leave it there for

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Speaker 2: a year and then went looking for other ways to

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Speaker 2: stimulate the economy. And they certainly succeeded. But the primary

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Speaker 2: mistake was just underestimating I think the how effective the

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Speaker 2: fiscal policy was going to be at that time, and

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Speaker 2: we were all taken by surprise by that. I think

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Speaker 2: the way to subsidy was hugely expensive, obviously, but very

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Speaker 2: reassuring to people, and so people just got bored and

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Speaker 2: went shopping.

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Speaker 1: Yes they did. I don't know if I'm making too

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Speaker 1: big a leap yesterday. But there's a story floating around

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Speaker 1: in Australia one of the banks saying people are saving

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Speaker 1: like they never had before. So two things out of that.

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Speaker 1: I just wonder if this whole commentary from the reserve

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Speaker 1: banks saying you know, look, look, look, your interest rates

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Speaker 1: are cheaper, go spend when people aren't this saving, and

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Speaker 1: whether that saving thing has come as a result of COVID.

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Speaker 1: So yes, we spent at the time, but now we've

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Speaker 1: worked out that wasn't the wisest thing, so now we're

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Speaker 1: saving more than spending.

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Speaker 2: Well, basically during COVID, there was so much money being

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Speaker 2: thrown around that a lot of it did actually get saved.

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Speaker 2: We managed to save a lot of money and have

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Speaker 2: a housing groom at the same time, and that those

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Speaker 2: savings them sort of buffet spending when tough at times came.

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Speaker 2: But they're pretty much been. We don't have great data

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Speaker 2: on saving, but as far as we can tell, those

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Speaker 2: butterers have been eroded, so we're back to back to

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Speaker 2: the usual sort of pattern of things now, I would say,

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Speaker 2: But yeah, throughout the world there was a big spike

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Speaker 2: in saving because money was really being thrown at households

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Speaker 2: and firms for a while there, and some of it

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Speaker 2: London in bank accounts.

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Speaker 1: You'll get to think the given we'd never dealt with

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Speaker 1: this before, that it was what it was. I don't

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Speaker 1: know whether we learn anything from it. It'll depend on

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Speaker 1: who the government of the day is, who the Reserve

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Speaker 1: bank governor of the day is, what country, year and

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Speaker 1: at the time. In other words, each each event will

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Speaker 1: unfold in its own way, and you can write reports

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Speaker 1: till you're blue in the face. Is not necessarily going

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Speaker 1: to change anything.

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Speaker 2: Well, he's hoping we don't get another pandemic, but you

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Speaker 2: know the experts are saying the chance we will, and

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Speaker 2: I think absolutely they will draw lessons from it, just

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Speaker 2: like the lessons from the christ Church earthquake and other

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Speaker 2: events of that kind of like they're inflationary. So in

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Speaker 2: the Hawk's Bay, whether event came along and people are like, oh,

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Speaker 2: you need to cut interest rates, like no, no, that

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Speaker 2: would not be helpful. And similarly they've drawn listened to you.

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Speaker 2: If there's a wop and great way subsidy comes along

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Speaker 2: because of lockdown, then you don't need to do as

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Speaker 2: much with monetary policy. For example, there were also some

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Speaker 2: fairly stern words in there about fiscal policy and about

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Speaker 2: how it wasn't temporary, timely and targeted. It went on

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Speaker 2: and on, and that actually that legitimately meant that the

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Speaker 2: economy stayed overheated for longer and they had to raise

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Speaker 2: the oci buy more exactly.

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Speaker 1: All right, Nice to talk to you, Sharon. As always,

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Speaker 1: Sharon's on out of the aims, and of course Treasury

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Speaker 1: said that at the time they said to the Reserve Bank,

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Speaker 1: Hay tighten up, and of course the Reserve Bank ignored women.

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Speaker 1: The rest, as they.

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Speaker 2: Say, it's history.

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