Mark Fowler: Is the Reserve Bank creeping too far?

COMMENT:

There has been no shortage of commentary around the change in Reserve Bank Governor and the recently proposed dual mandate that will see our central bank focusing on both inflation targeting and employment, to support growth and business confidence in the economy.

What is becoming increasingly clear, however, is that our new Governor, Adrian Orr, seems happy to share his views on a far broader spectrum of topics such as climate change and social responsibility, to name just two.

Although I understand it is the Government's objective to improve the wellbeing and living standards of New Zealanders, is it really the role of the Reserve Bank Governor to espouse his views or political agenda on social responsibility?

Many Kiwis will no doubt agree that a combined effort to promote New Zealand Inc. can only be a good thing, but that is not my point.

The role of the Reserve Bank, as I see it, sits within a relatively narrow remit — to maintain stability in the general level of prices over the medium term and now support maximum sustainable employment.

Offering personal views on cultural diversity, climate change and infrastructure seem strangely broad and signal a distinct shift from Orr's predecessors.

Some of these wide ranging views may be down to the proposed broadening of the Reserve Bank mandate, and while it is important not to be bogged down by the past, this is a material shift from previous communications and directives.

The need to consider the social and environmental consequences as well as the financial viability when allocating capital, will resonate with New Zealanders as long as those considerations are balanced and do not restrain progress. The approach to public/private partnerships is refreshing, rather than local and central Government collecting capital via taxation and rates.

Investment capital, particularly for infrastructure projects, could also be sourced directly from the capital markets.

However, this brings me back to my original point.

Much of this discussion centres on the notion of 'Central Bank creep'.

Are these the views from the head of the Super Fund or the Reserve Bank Governor? There's an argument to be made that the global financial crisis has pushed central banks well beyond their comfort zones, and in some cases, their core job descriptions.

To this point, Adrian Orr's short tenure has to a large degree, been without incident.

Central Banks will always be subject to pressures by government but the value of their independence should not be understated.

Whilst social issues and climate change are aspirational, monetary policy and financial stability fit the job description more accurately.

Mark Fowler is head of investments at Hobson Wealth Partners