Reserve Bank governor in good company

What should one make of the Reserve Bank Governor’s extraordinary donation of a hostage to fortune in forecasting an end to interest rate hikes?

Conspiracy theorists will be scratching their tinfoil hats and mumbling about positioning for a whacking great payoff on being forced out by a new government. 

But presumably – given Orr does not exactly lack self confidence – he believes it.

Which surely risks turning it into an inadvertent post-dated resignation letter?

Reappointment of Orr as RBNZ Governor Evokes Chorus of Criticism

The Ardern government has reappointed Adrian Orr for a second five-year term as governor of the Reserve Bank of New Zealand.

Finance Minister Grant Robertson said the RBNZ board unanimously recommended his reappointment.

He said the central bank had been going through considerable change during Orr’s first term and his reappointment would make sure the changes were bedded in.

But the reappointment has brought a chorus of criticism from Opposition parties. National’s  deputy leader Nicola Willis says

National is “appalled” by the Finance Minister’s decision to re-appoint  Orr without first completing an independent review of the Bank’s performance.

“In recent years, Adrian Orr as the Chair of the Monetary Policy Committee signed off on an extraordinary programme of money printing and cheap lending that pumped tens of billions of dollars into the economy. That programme directly contributed to house prices rising 28% in one year, inflation rising to a 32-year high, and record bank profits”.

ACT leader David Seymour was equally fierce in his denunciation of the reappointment.

“Despite a term of poor leadership, poor focus and poor outcomes, Adrian Orr has somehow been reappointed for another term as Reserve Bank Governor,” says Seymour.

“In September I sent Finance Minister Grant Robertson an extensive letter outlining the many reasons we can’t afford another term of Adrian Orr in the role.

“He has shown poor leadership throughout his term, punctuated by high staff turnover and a failure to accept any responsibility for these issues”.

However  the  Finance Minister defends  the  reappointment and  says in light of global conditions, it is a time when stability and continuity are paramount for the Bank.

 Robertson says Orr has demonstrated the skills, knowledge and experience to help steer the financial system through the 1-in-100 year economic shock of the pandemic.

“I am happy to endorse the recommendation of the Board. I have full confidence that he will continue to display the same integrity and leadership in performing his duties as Governor in what is still a challenging environment.”

Orr was appointed in 2018 to succeed Graeme Wheeler and his term was set to expire in 2023.

He is a former head of the NZ Super Fund, chief economist at the Reserve Bank, Westpac and National banks, and has worked at the OECD and Treasury.

Orr has overseen the RBNZ expanding its scope, with monetary policy widened to include employment as well as inflation targets, taking climate change into consideration of policy, making banks hold more capital, tougher regulation of banks and insurance companies, and a broader engagement with te ao Māori.

Critics  have  directed  fire  at the RBNZ for its bond buying, and cheap finance for banks as fuelling the hot housing market and current spike in inflation, and the subsequent response of ratcheting up interest rates.

Orr has responded that the RBNZ has taken a “least regrets” approach opting to do run the risk of doing too much rather than too little to support the economy and households.

Critics  also  note that when appearing in front of the Finance and Expenditure Committee last week Orr refused to accept the Reserve Bank had got anything wrong, despite massively overstimulating the economy, causing consumer price inflation, asset price inflation, inequality, and now higher interest rates.

A report on the RBNZ’s handling of monetary policy over the past five years is due out shortly, and the central bank is also consulting on the remits it operates under.

Who’s to blame for Kiwis’financial pain? Seymour may have the answer

As  inflation hits  levels a  generation of  New Zealanders hasn’t  seen, politicians are thrashing  about,blaming anyone but themselves for the   financial  storm  enveloping   households  and  businesses  alike.

The  official  cash rate has already  risen  from a Covid low of 0.25% to 3.5% and is expected to hit 5% or  higher.

Grant  “look, no hands” Robertson tells  the  Dominion-Post  the  banks’  social licence   requires  them to  support  borrowers “if  times get  tough”. 

Meanwhile  over  in the  NZ  Herald,  the  Greens’ Julie-Anne Genter  says  we need  a  tax  system that prioritises  people  over profit.

RBNZ on the back foot as inflation rises – but consumers are struggling on a sticky wicket, too, as food costs soar

Reserve Bank “not in a  good  place”, admits  governor.   This  was  the  headline  Radio NZ  News  ran over  a  report of  RBNZ governor Adrian  Orr  speaking  to an International Monetary Fund  seminar.

He  might have  added  that the average  Kiwi consumer  is  “not  in  a  good  place”, either,   when doing the  daily  shopping,  with  food  costs soaring  and  inflation  rising at  a faster  rate  than  it  has  for nearly  30  years.

But isn’t  it  Orr’s  job to  keep  inflation  under  control – or can he pass the buck (as it shrinks in value) to the Monetary Policy Committee?

And whatever happened to the inflation target?

Orr  does  concede that  the  RBNZ  was caught on the back foot,  but argues  that was the same for many other central banks, as a  result of supply chain shocks and the Russian invasion of Ukraine, which had exacerbated inflation pressures.

Moreover, he  contends the RBNZ had been “reasonably aggressive” in ending its bond-buying programme last year and moving to lift the official cash rate,  and is also balancing risks.

Govt will help us find forgotten money – it will also enable the RBNZ to hire more staff to (hopefully) protect our finances

Latest from the Beehive –

Our immediate reaction was to be grateful on learning from a Beehive press statement headline that  the government is Protecting Kiwis with stronger financial supervision

Our second reaction was to wonder exactly how it intends strengthening this supervision.

The answer is that a new five-year funding agreement with the Reserve Bank will provide it with an annual average budget of $115 million, up $35 million from this financial year.

The bank expects staff levels to rise 58% to 468 during that period.  To do what?

Not only does the government intend protecting our financial wellbeing, however.  It also aims to boost the finances of some people by introducing a law change to make it easier for forgotten funds in institutional accounts to be returned to their rightful owners.

Revenue Minister Stuart Nash has introduced an amendment to the Unclaimed Money Act 1971. It will update the rules controlling forgotten sums of money held by banks or other financial institutions and professional bodies.

The long list of institutions which hold money on behalf of clients includes banks and building societies, lawyers’ trust accounts, sharebrokers, real estate agents, auctioneers, insurance companies, motor vehicle dealers and company liquidators.

The RBNZ’s staff numbers surge – but the governor warns he wants more (especially for supervision)

Staff expenses at the Reserve Bank  – which have increased by an average 4.4% a year since 2009/11 – surged by 14.8% in the 12 months to 2018/19.

Total staff numbers increased by an average 3.4 a year during those nine years  but shot up by 19  in 2018/19 from 255 to 274.

But wait.  We need more – or rather, the governor says he needs more.

The Taxpayers Union reckons we should ignore him.

According to the Dominion-Post, Adrian Orr this week told a parliamentary select committee the bank is anticipating “a much more significant increase” over its next five-year funding period.

“The begging letter is on its way to the Treasury for inspection and then we will be going into our funding agreement discussion with the Minister of Finance in mid-March,” he said.

Orr told Parliament’s Finance and Expenditure select committee he was not comfortable talking about the scale of the possible resourcing increase ahead of those discussions, but said it was “30 per cent perhaps”.

“The biggest percentage change in staff would be in supervision.”

How the management of monetary policy (and other RBNZ activities) are being steeped in Maori mythology

Acculturation – the cultural modification of an individual, group, or people by adapting to or borrowing traits from another culture or a merging of cultures – is increasingly evident in this country’s public agencies.

The Reserve Bank of New Zealand has not escaped the process.  In July 2018, soon after Adrian Orr became the governor, the Otago Daily Times reported the new  head of the country’s august central bank was planning to shift the mindset of the institution towards better embracing the rich cultural diversity of the country.

Since he had taken up the post (the ODT reported)

… phrases like tikanga Maori and te reo have begun to feature prominently on its priority list.

And:

Under his watch, the bank’s Statement of Intent, where it sets out its strategic objectives to the Government for the next four years, highlights its intent to embed  te reo and tikanga Maori into the culture of the bank.

Crackdown on the banks was not as severe as had been feared – RBNZ board might have had a muffling effect

The roll of drums sounded  for  many  months — but the  Reserve  Bank’s call  on  how  the country’s banks could  withstand  a  one-in-200-year financial  crisis  landed  with  less of  a bang, more  like a whimper,  last week.

At least, that’s how  the  markets  interpreted   the  decision of the Governor,  Adrian  Orr,  whose  early  belligerence  had struck terror  into  the boardrooms of  trading banks,  particularly those with  headquarters across the  ditch.

By Monday, economists decided the changes, being softer  than  originally  proposed,  would  prove less of  a headwind  to the economy than   initially envisaged.

The overall  level  of  capital  required    will  still  have  to  rise  from a minimum of  10.5%  currently to  18% — -but the banks  will have longer to raise the capital. And  the RBNZ softened  what  it will consider as tier one  capital  to include redeemable preference  shares, offering  a cheaper  way to  raise money.

RBNZ board is pressed to put many hard questions about surprise slashing of the OCR

Michael Reddell, on his Croaking Cassandra blog, has scolded the Reserve Bank Monetary Policy Committee about its prowess – or lack of it – in the communications department.

His concerns were raised by the committee’s decision – announced yesterday along with the latest Monetary Policy Statement – to lop the Official Cash Rate by 50 basis points to 1 per cent.

As Westpac commentators noted:

“This was a stunning decision – in the history of the OCR, the only times the OCR has been cut by 50bps or more have been after the 9/11 terrorist attack, during the GFC, and after the Christchurch earthquake. We are very surprised that the RBNZ decided to cut 50bps in today’s environment.”

Reddell was surprised, too, and is urging the RBNZ’s board to ask hard questions about just what went on before the announcement.

Fallout from the Hisco affair is bound to spread to RBNZ moves to regulate bank capital

Pressure may be mounting for  a  broad  inquiry into  the banking industry following recent incidents involving  the biggest trading  bank in NZ.

Agriculture  Minister  Damien  O’Connor  said this week  banks  are  “bullies”  (according to a  Radio NZ report).  It’s a  sentiment shared  by  many  New Zealanders.

This  sentiment has  been rekindled by the departure  of ANZ’s CEO  David Hisco  who, it had been found, passed off charges for chauffeur-driven cars and the cost of storing his wine collection as business rather than personal expenses.

ANZ suffered a couple of regulatory blows last month with the Reserve Bank forcing it to hold more capital against housing and farm lending from June 30 and to use the standardised model for calculating its operational risk capital (ORC) rather than its own internal model.  That’s because it had been using a modified internal model for calculating ORC since December 2014 without first getting RBNZ approval.