Treasury Secretary to be new Reserve Bank Governor

11.00am - by FRANCESCA MOLD

Treasury Secretary Dr Alan Bollard has been appointed the country's new Reserve Bank Governor.

Finance Minister Michael Cullen this morning announced the decision to appoint Dr Bollard, 51, to the position formerly held by Don Brash who resigned as governor in April so he could stand for the National party at the election.

Dr Bollard was nominated for the role by the non-executive directors of the Reserve Bank. The nomination was accepted by the Government.

"Although I am obviously very pleased that the board has chosen someone of such high ability, it was with mixed feelings that I accepted their recommendation because it means I will lose Dr Bollard as Secretary to the Treasury," Dr Cullen said.

"He has been enormously successful in changing the culture of the Treasury into a more open and outward looking organisation and was always a pleasure to work with."

Dr Bollard's appointment is subject to agreement on details of his employment contract and to the negotiation of a new Policy Targets Agreement (PTA) - the agreement between the Governor and the Finance Minister over how monetary policy will be run.

The Government wants monetary policy outcomes to move closer to those of Australia, Dr Cullen said.

That means he wants the RBNZ to be more flexible in implementing the bank's target of keeping inflation between zero and 3 per cent.

The Reserve Bank Governor is appointed by the Finance Minister for a term of five years.

Dr Bollard has been Secretary to the Treasury since February 1998. Before that, he was New Zealand Commerce Commission chairman and director of the New Zealand Institute of Economic Research. Dr Bollard has also worked as an economist in Britain and the South Pacific.

Although appointed to Treasury while the National Party was in power, Dr Bollard has overseen a transformation in the Government's financial and taxation watchdog from a market-driven organisation to one that sees a much larger role for Government in financial affairs.

Dr Bollard is married to investment banker Jenny Morel, one of the country's leading venture capital specialists.

He was the first outsider appointed Secretary to the Treasury since World War 2. At the time of his appointment, he said he favoured incremental change rather wholesale, sudden change.

Among those whom Dr Bollard beat to the job were the current acting governor, Rod Carr, and former deputy governors Peter Nicholl and Murray Sherwin.

Others considered to be contenders include Reserve Bank chief economist David Archer, ANZ managing director Murray Horn and Deutsche Bank chief economist Ulf Schoefisch.

Dr Cullen went on the offensive before the election, criticising the central bank for rigid operation of monetary policy by aiming for the mid-point of the 0 to 3 per cent inflation target.

The New Zealand dollar remained virtually unchanged shortly after the appointment. It was sitting around US46.7 cents.

Dr Bollard said his next step was to negotiate the PTA with Dr Cullen.

The timing of his move to the bank had yet to be agreed with his employer, the State Services Commissioner.

Dr Bollard would not make any comment on a possible relaxation of the PTA.

"Until the Policy Targets Agreement is finalised, and my employment contract is signed, it would be inappropriate for me to make any further comment on any matter relating to the Reserve Bank Governor position," he said in a statement.