On the Tiles: Former Reserve Bank governor Grant Spencer weighs in on recent policies

Grant Spencer, a former acting Reserve Bank governor. Photo / Mark Mitchell

Adrian Orr's predecessor as governor of the Reserve Bank has criticised how the central bank handled policies during the early stages of the Covid-19 pandemic - and has issued a warning for political parties touting tax cuts ahead of next year's election.

The Reserve Bank has faced a stream of criticism in recent months over the policies implemented since the start of the pandemic, with National and Act criticising policies that they see as having contributed to inflation and the rising cost of living.

A monetary policy review, covering policy decisions made since 2017, released earlier this month found the bank could have tightened policies around quantitative easing and lifted interest rates earlier, but the Reserve Bank's decisions were consistent with data available at the time.

Grant Spencer, who served as Deputy Reserve Bank governor between 2007 and 2017, and acting governor before March 2018, told the Herald's politics podcast On the Tiles that the review did not get to grips with the bigger strategic issues, and noted housing as one of three areas that warranted further examination.

He said it was clear house prices were soaring at the end of 2020, and the bank could have acted earlier.

"Instability in housing and moving to huge, unsustainable levels of house prices is not an appropriate strategy for monetary policy. They should have been taking the foot off the accelerator when they saw the boom coming through in housing in late 2020 and right through 2021."

Asked about the growing mood for some form of tax relief as inflation continues to hit the economy, Spencer agreed tax cuts are the last thing needed to ease inflation, citing the UK economic crisis that forced Liz Truss from power as an example.

"When you have inflation as you've got now, then you do have fiscal drag where everyone's going up the tax brackets and it increases the overall tax take. So from a long-term point of view, there's a legitimate argument to make adjustments to tax, but it's not the right time to do it when the central bank's breaking its back, trying to ease back on inflation pressures and domestic."

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