Reserve Bank of NZ governor Adrian Orr is under fire both from previous RBNZ governors and senior staff, and from politicians calling for an independent review into the central bank’s performance in response to the Covid pandemic. 

Opposition leader Christopher Luxon said yesterday an inquiry was needed into "the extent to which a tidal wave of cash poured on the New Zealand economy caused the current cost of living crisis”. 

“New Zealanders deserve an independent appraisal of the decision-making during this extraordinary time. Quite simply, could the worst of today’s inflation hangover have been avoided and if so, how can we stop it happening again?"

Luxon, the leader of the National Party, also took aim at finance minister Grant Robertson’s role in the pandemic response, and said any review should happen before Robertson makes his decision on reappointing Orr - a decision due before the next general election.

“A key question will be the roles the finance minister and the Treasury took in both facilitating the Reserve Bank response and co-ordinating with it. The inquiry should be time-bound, to ensure public scrutiny of its outcomes prior to the appointment process for the Reserve Bank governor, which is required ahead of the end of Adrian Orr’s current term in March next year," Luxon said.

"Were interest rates kept low for too long? Was the programme of Large Scale Asset Purchases (LSAP) and the Funding for Lending programme, together with the low interest rates, were they over-stimulatory to the economy, when combined with unprecedented fiscal stimulus from Grant Robertson?"

Luxon’s comments followed the publication on Monday of a paper entitled ‘How Central Bank Mistakes After 2019 led to Inflation’, co-authored by former Reserve Bank governor Graeme Wheeler and including a foreword by William White, the former deputy governor of the Bank of Canada.

“To begin restoring their damaged credibility, central banks must assess and acknowledge why their models and judgements were so inaccurate and inform the public on what steps they are taking to rebuild public confidence,” Wheeler said.

Wheeler joins former RBNZ governors Don Brash and Grant Spencer, former chair Arthur Grimes and former chief economist John McDermott in criticising Orr for being too loose with policy and not focusing enough on keeping inflation down.

In response, Orr took the unusual step of releasing a statement yesterday afternoon, noting the inflation rate of 7.3 per cent and acknowledging that the RBNZ’s “Monetary Policy Committee’s decisions over recent years have influenced this outcome”. 

“Inflation is no one’s friend and causes economic cost,” Orr said.

Essentially saying the bank did the best it could at the time, Orr said there was already an internal monetary policy review underway that would assess “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. “The decisions of the Monetary Policy Committee are always made with the information at hand at the time.

“I regret that the Committee – and society at large – has been confronted