Uhh, what the fuck? How did anyone think letting this person go was a reasonable thing to do?
It's hard to say since they won't release the details to the media, but I'd say most likely it seemed reasonable at the time. For example, perhaps he had medication that was controlling his delusions and hadn't done something like this before, but for some reason he stopped taking the medication. In this case, it may be reasonable to release him so long as he takes his medication. He doesn't, so he ends up back in court with compulsory treatment.
Schizophrenia affects an estimated 0.3-0.7% of the population at some point in their lives. There are different symptoms so not all incidents are like this case, but we are talking 15,000+ people in New Zealand. The court likely sees similar things a lot, and many, maybe even most, would not have any further incidents.
It's crap that this happened but I think I'd give the judge the benefit of the doubt.