A full review of how the Reserve Bank responded to the pandemic will be released next month, Reserve Bank Governor Adrian Orr confirmed today.
In a speech at the Institute of Finance Professionals (INFINZ) annual conference this morning Orr said the RBNZ's five-year review of monetary policy was "near delivery".
"This will canvass what the Monetary Policy Committee did and why, what worked, and what we could have done better," he said.
"The work is being reviewed by independent experts and our new board, and will be published mid-November."
The RBNZ has faced criticism in the past year for the level of pandemic stimulus it delivered which may have contributed to high inflation.
Orr reassured delegates that, with regard to its monetary policy objective, the bank had its "eyes firmly focused on meeting our inflation target".
"There will be stresses in business and amongst households as interest rates and asset prices adjust," he said.
"Of critical importance to overall financial stability will be the robustness of the labour market."
Orr warned that the interest rate hikes needed to beat inflation would mean higher unemployment.
"Returning to low inflation will, in the near-term, constrain employment growth and lead to a rise in unemployment," he said.
"The actual extent of this trade-off remains unclear, however, given the significant labour shortages globally and the very different means of employment being adopted post-Covid."
"Importantly, it is highly unlikely that we are at maximum sustainable employment if inflation is still high and variable," he said.
He referenced his recent meetings with the International Monetary Fund and World Bank in Washington DC.
"While people were genuinely pleased to meet in person again, that's where the fun stopped. The content of the meetings was far from positive," he said.
The world economy was experiencing high inflation, he said.
"The trade-off of the long-run benefits of low and stable inflation versus near-term spending and employment is being confronted in virtually every country simultaneously."
Yesterday Australia reported its annual inflation rate had hit 7.3 per cent for the September quarter - compared to New Zealand's rate of 7.2 per cent.
In the UK the annual rate is now above 10 per cent and in the US it is above eight per cent.
"The global coincidence of the monetary policy tightening is not surprising," Orr said.
"Covid has been a global shock to the productive capacity of the entire planet. People are worse off for it, and spending plans have been radically disrupted. We are still working through the lingering economic impacts of the lingering virus."
He noted that the US policy response and the strength of the US dollar were creating challenges for smaller-open economies like New Zealand.
"Nations with US-pegged or managed exchange rates are needing to use their foreign dollar reserves to support their currency," he said.
"Those nations with floating exchange rates — such as New Zealand — are experiencing higher imported cost pressures, which can lead to longer-term embedded inflation if expectations become unanchored."
Tensions between inflation and employment, rising interest rates and financial stability, monetary and long-term fiscal policy as well as geopolitical concerns and climate change were testing political consensus within and between countries, Orr said.
"The most used word of the IMF and World Bank meetings was 'fragmentation' of global trade and policy consensus."
Orr summarised broadly what he saw as the IMF and World Bank's prescription for meeting these challenges:
Inflation needed to be contained in "a Goldilocks manner" where tightening was sufficient to tame inflation expectations, but without sending countries into a deep recession, he said.
Fiscal policy needed to be "at the least" targeted and temporary.
It needed to be targeted toward the people most impacted by higher food and energy prices, and temporary in that policies could be removed when the circumstances permit, he said
Financial resilience was critical, "so that the financial system could do what it did best, allocate resources to their best long-term use".
And finally, ongoing structural reform was required to enhance productivity and enable the flow of resources to efficient use, he said.
"It is this area of global economic policy that has received the least attention for some time, with the focus being on monetary and fiscal stabilisation through the Covid years, and now war, energy constraints, and food shortages."
These four key steps to ongoing economic resilience were firmly "within the New Zealand way of doing things", he said.
"We are in relatively good stead."
Over the next few weeks, the RBNZ would release a substantial amount of data, analysis and research, Orr said.
This included next week's Financial Stability Report, the 5-yearly review of monetary policy activity, the next Monetary Policy Statement (November 23) and the second round of public consultation on the 5-yearly review of the Monetary Policy Remit.