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Monetary Policy Challenges for a Small Open Economy during COVID-19

Adrian Orr

Sir Leslie Melville Lecture: A speech delivered to Australia National University in Canberra, Australia

On 2 December, 2020

By Adrian Orr, Governor


Tēnā koutou katoa, welcome everybody. Thank you for the privilege and opportunity to deliver this year’s Sir Leslie Melville lecture. Joining today via video conference provides the appropriate backdrop to the theme of my speech – implementing monetary policy during the COVID-19 pandemic.

Today I will outline the focus Te Pūtea Matua, the Reserve Bank of New Zealand, maintained throughout our response to the pandemic crisis. Our legislative mandate and operational independence put us in good stead to act swiftly and with confidence to provide effective assistance in buffering the economic impact of the virus here in New Zealand.

The team at the Reserve Bank remained focused on maintaining low and stable consumer price inflation, contributing to maximum sustainable employment, and promoting a sound and efficient financial system. I also outline how the Reserve Bank’s monetary and financial policies provided significant mutual support for the Government’s fiscal initiatives. The support was direct through lower interest rates and financial regulatory efforts, and indirect via our market operations.

Not all has been plain sailing of course, and I am immensely proud of our team as to how they responded to rapid change with innovation and commitment.

New Zealand, like most OECD countries, commenced the pandemic response with nominal interest rates near an effective lower bound. To be successful in our recent work we were tasked with both building and operating new means of implementing monetary policy. Our goals remained the same, our tools evolved.

In hindsight, the development of new monetary policy tools was simple, not easy. It is the communication challenges with our stakeholders and broader public that remains work in progress.

As is the case internationally, central bankers must continually explain what they can and can’t do – that is, where the limitations of monetary policy rest. I will conclude by outlining the work we have ahead of us on communication and research, so as to best ensure that the Reserve Bank of New Zealand remains effective and well understood.