Editorial: Political stand-off around Reserve Bank Governor not good for anyone

Reserve Bank Governor Adrian Orr during his appearance at the Finance and Expenditure committee at Parliament. Photo / Mark Mitchell

EDITORIAL:

The politicisation of the Reserve Bank is not good for anyone, regardless of the current Governor’s performance.

The reappointment of RBNZ Governor Adrian Orr for a second five-year term has brought tensions over the performance of the central bank to a head.

National leader Christopher Luxon and finance spokeswoman Nicola Willis have refused to express confidence in Orr and repeated calls for a full independent inquiry into the RBNZ’s Covid response.

That’s despite the release of an internal review - with independent oversight - which acknowledged that the RBNZ could have moved sooner to tighten monetary policy and head off inflation.

National says the review is not credible and that a one-year extension of the current Governor’s role would have been much fairer to allow a new appointment post-election.

Roberston will argue that he was following standard procedure in approving the recommendation of the Reserve Bank Board to reappoint Orr - a decision presumably made after they had read the Monetary Policy Review.

The disconnect between five-year Governorships and three-year parliamentary terms has always had the potential to cause issues.

But even one of Orr’s harshest critics - economist and former Reserve Bank staffer Michael Reddell - calls the idea of temporary appointments to avoid political clashes “terrible”.

Reddell doesn’t see the issue as being with the timing of appointments, but rather, with the appointment of Orr - at all.

He doesn’t even see the RBNZ’s Covid response and record on inflation as the primary concern (although he does have concerns about the scale of quantitative easing).

Reddell notes in his blog that currently, New Zealand sits in the middle of the OECD pack on core inflation measures and largely followed a similar prescription to the US Federal Reserve and other major central banks.

Reddell’s concerns are more broad-based and relate to Orr’s management style, staff turnover and his efforts to broaden the RBNZ’s scope, focusing on areas like Te Reo and climate change.

That somewhat undercuts National’s reasons - to date - for not expressing confidence in Orr.

If we dial the criticism back on monetary policy then the jury is still out. A year from now the extent to which it has failed or succeeded will be far clearer.

Regardless, if National does win power next year that sets up an uncomfortable dynamic for a crucial area of policy setting.

Sacking an RBNZ Governor currently requires a dramatic appeal to the Governor General and would not be good for New Zealand’s financial market stability.

A clearly stated lack of confidence in the Governor by the finance minister might prompt his resignation but would also be destabilising.

An independent review of the RBNZ’s response is one avenue that might satisfy National but now seems unlikely in advance of the election.

That leaves one radical option - the Governor and the incoming finance minister (from whichever party) sitting down and working through their issues for the good of the country.