Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on the Reserve Bank revealing Covid spending didn't contribute to inflation issues

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Jenee Tibshraeny: NZ Herald Wellington business editor on the Reserve Bank revealing Covid spending didn't contribute to inflation issues · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk sed B.
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  Speaker 2: Do you remember how the Reserve Bank printed huge amounts
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  Speaker 2: of money during COVID. This was the so called large
• 0:22
  Speaker 2: Scale Asset program, which was worth fifty five billion dollars.
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  Speaker 2: The Bank has just published new research that concludes that
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  Speaker 2: none of it meaningfully contributed to our huge inflation problem, because,
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  Speaker 2: of course not. Jane Tibsrani is the heralds Wellington Business
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  Speaker 2: editor and after a very long period away is back
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  Speaker 2: with us. Hello, Jenne Hi, Heather, welcome back. Now do
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  Speaker 2: we buy this argument from Paul Conway?
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  Speaker 3: Yeah, Look, I mean I'm no expert, but I'll explain
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  Speaker 3: the thinking. So at the pandemic, as you said before,
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  Speaker 3: the Reserve Bank effectively created fifty five billion dollars, use
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  Speaker 3: that money to help keep interest rates down, you know,
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  Speaker 3: tried to stimulate the economy. Of course, in twenty twenty
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  Speaker 3: one twenty twenty two, we had huge inflation. Now a
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  Speaker 3: lot of us, you know, would point the finger at
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  Speaker 3: the whole government Reserve Bank response, but often there's been
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  Speaker 3: this narrative that the money printing part was a major
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  Speaker 3: contributing factor. Now, Poor Conway and staff at the Reserve
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  Speaker 3: Bank said, actually, no, like, yes, it had an effect,
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  Speaker 3: but not a huge effect. The reason is because that
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  Speaker 3: program largely affected the exchange rate, so it weakened the
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  Speaker 3: New Zealand dollar. That helped exporters, and that boosted the economy. Basically,
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  Speaker 3: they're saying that, unlike the OCR, it didn't have a
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  Speaker 3: big effect on consumer demand. So when the Reserve Bank
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  Speaker 3: cuts the OCR, that affects short term interest rates, that
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  Speaker 3: makes people's mortgages cheaper and gets them out in the
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  Speaker 3: economy spending more. That has more of a direct impact
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  Speaker 3: on economic demand and therefore inflation. So Poor Conway is saying, look,
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  Speaker 3: you know, money printing isn't perfect, lots of downsides, but
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  Speaker 3: we should be weary of pointing to that and isolating
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  Speaker 3: it and saying, don't never do that again, because it's
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  Speaker 3: the reason we had large inflation.
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  Speaker 2: Do we also buy the argument that even though they
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  Speaker 2: lost nearly eleven billion dollars, it was okay because it
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  Speaker 2: drove up the tax take for the government, so it
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  Speaker 2: paid for itself.
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  Speaker 1: Yeah.
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  Speaker 3: Look, this has been issue that I've had for some time,
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  Speaker 3: basically because of the mechanics of the money printing. It
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  Speaker 3: came at a direct cost to the government of about
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  Speaker 3: nearly eleven billion dollars. That's a lot of money, right,
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  Speaker 3: But the Reserve Bank is saying that actually the large
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  Speaker 3: show as a purchase program did stimulate the economy. You know,
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  Speaker 3: that meant people paid more tax and it also suppressed
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  Speaker 3: the interest rates that the government paid for all the
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  Speaker 3: debt that it took out at the time. And for
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  Speaker 3: the first time it tried to put some numbers to that. Now,
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  Speaker 3: it's very hard to put numbers to that to say,
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  Speaker 3: you know, the government been did all the stimulus, Now
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  Speaker 3: which part of the stimulus are we putting down just
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  Speaker 3: to this one program, and then looking at the costs
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  Speaker 3: and saying, well, what, you know, how did that benefit
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  Speaker 3: the government? The Bank has done that for the first
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  Speaker 3: time and it said it's concluded that the costs and
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  Speaker 3: the benefits, direct costs and direct gains to the government
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  Speaker 3: in terms of money were about the same. So while
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  Speaker 3: we talk a lot about this eleven billion dollar cost,
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  Speaker 3: they say that the tax revenue and the lower interest
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  Speaker 3: costs that the government faced were about worth the same.
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  Speaker 4: Yeah, I mean, the just that got here Jana, is
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  Speaker 4: that they're marking their own homework, right, and so everybody's
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  Speaker 4: gonna look at it a fair explanation, but actually you'd
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  Speaker 4: like somebody independent to give, you know, to do a
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  Speaker 4: similar exercise, wouldn't you.
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  Speaker 3: Yes, And the Reserve Bank did d a review of
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  Speaker 3: its response and publish those findings in twenty twenty two,
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  Speaker 3: and it had them pair reviewed. But I have been
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  Speaker 3: calling for some time for just you know, for them
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  Speaker 3: to try to do the maths and to say, well,
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  Speaker 3: this was the cost and this was the direct benefit.
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  Speaker 3: I mean, it's kind of baffling that it's taken this
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  Speaker 3: long to get to this conclusion, and it's kind of
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  Speaker 3: I mean, it's kind of unfortunate because all this time
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  Speaker 3: there has been this narrative that this that money printing
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  Speaker 3: is a terrible thing, because look at the effect and
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  Speaker 3: look at the cost. I think that what Paul Conways
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  Speaker 3: tried to do here is to say, yes, you know, sure,
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  Speaker 3: but here's a more nuanced discussion, and here's some modeling
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  Speaker 3: and here's some figures. So I think that the bank
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  Speaker 3: can be commended for that.
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  Speaker 2: Yeah, brilliant, Hey, thank you very much, Jane. It's nice
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  Speaker 2: to have you back this Genejab Training of the Herald
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  Speaker 2: in Wellington.
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