<\/p>\n
\nLarge Scale Asset Purchases cost the economy about $10.5b, but had positive benefits.
\nPhoto: RNZ\n<\/p>\n
The Reserve Bank’s $53 billion money-printing policy during the pandemic paid for itself and helped keep the economy functioning at a time of stress, according to the central bank’s chief economist.<\/p>\n
In a speech to a Sydney investment conference, Paul Conway said the bond-buying programme, known as Large Scale Asset Purchases (LSAP), cost the economy about $10.5b in losses, but had significant positive benefits.<\/p>\n
“By boosting economic activity during the pandemic, LSAPs increased government tax revenues,” he said. “This higher revenue almost entirely covered the direct losses from LSAPs, leaving consolidated crown debt virtually unchanged over the medium term.”<\/p>\n
He said RBNZ research showed the programme had also restored financial market confidence, then lowered long-term interest rates, which held down the exchange rate and supported exports.<\/p>\n
Several commentators strongly criticised the LSAP programme, the cost and the related programme of $19b of cheap loans to banks<\/a>.<\/p>\n Negative interest rates better<\/p>\n Conway said using negative interest rates would have been preferable, but that was not available when Covid hit.<\/p>\n Negative interest rates allow a central bank to charge commercial banks to hold their excess reserves, instead of paying them interest, as a way to lending to businesses and individuals to stimulate economic activity.<\/p>\n “If moderately negative interest rates had been possible during the pandemic, our work suggests that could have delivered similar outcomes for growth and inflation as LSAPs, but at a lower cost to the crown,” Conway said.<\/p>\n He said the then-government’s various big-spending policies, such as the wage subsidy and other pandemic support policies, also worked against the RBNZ’s approach and contributed to the inflation spike.<\/p>\n “Containing inflation over this period required the OCR to be higher than otherwise, if fiscal support during the pandemic had been more timely and temporary.”<\/p>\n