A role under review
sharply based on the governor’s utterances, creating a type of pressure which few jobs entail.
Orr, though, should be well equipped to cope. As well as having been a former head of economics at the Reserve Bank and deputy governor, he has spent the past decade as chief executive of the NZ Super Fund, which now manages more than $30 billion.
As Sharon Zollner, the chief economist at ANZ has noted, it is hard to think of someone more qualified to take the role.
That role is set to undergo major change, however. Today Orr will sign a agreement with Finance Minister Grant Robertson which will require the bank to pay more attention to the state of the employment market, not just inflation, when setting interest rates.
That may seem immaterial, especially when economists seem to be of a view that it will make no difference to what the Reserve Bank will do to interest rates any time soon. But for a central bank that has led the world in its somewhat single-minded focus on controlling inflation, it is big.
The larger change, though, is still in the works. At Robertson’s behest, Treasury is undertaking a wide-ranging review of the way the central bank operates and how it makes decisions.
Where previously the governor has been able to make decisions entirely independently – of anyone – Robertson has indicated he’d like to see major decisions made by a committee.
As often happens during reviews, calls for other types of change are being voiced.
Some are suggesting that creating outside oversight does not go far enough, with some calls for the Reserve Bank’s financial stability role (effectively its monitoring of the banks and insurance sector) to be hived off into a new body.
Some change is inevitable. With no disrespect to Orr or any future governor, leaving so much power in one person’s hands is not best practice anywhere in the public or private sector.
Robertson needs to be careful, though. Criticism of the Reserve Bank needs to be seen in context.
The Treasury itself has been critical, suggesting that restrictions on home lending might overstep the Reserve Bank’s mandate.
But the Treasury has been engaged in a decades-long power struggle with the Reserve Bank. Does it simply want to clip the governor’s wings as an end in itself?
As Zollner has pointed out, to all appearances Orr is the right person for the job.
Having found the right governor, Robertson should be careful not to put too much power in the hands of less qualified people.