Orr key as new era looms

WELLINGTON: Adrian Orr will have a new operating mandate when he starts as Reserve Bank governor this week and analysts say he may break the mould of a staid central banker, even if it is not clear if he is hawkish or dovish in outlook.

Mr Orr, who has had 10 years as head of the New Zealand Superannuation Fund, will have a new policy targets agreement (PTA) that is expected to change the central bank’s longheld exclusive focus on inflation targeting to include an employment objective.

Currently, the central bank is mandated with using monetary policy to keep inflation within a 1% to 3% target range, with a focus on the midpoint. The Government, however, has said it wants the central bank to target maximising employment along with price stability. It is also pushing for other changes, including shifting to a committee structure as opposed to a sole decisionmaker, and a wider review of the Reserve Bank Act is under way.

Acting central bank governor Grant Spencer kept the official cash rate at a record low 1.75% on Thursday as inflation remained very tepid.

‘‘The key question for the market is not what happens today, but what is going to come out of the new PTA when Adrian starts,’’ ASB senior economist Jane Turner said.

The new PTA is expected to be made public at any time and while it could contain something unexpected, Ms Turner said it was most likely to include a nonnumerical employment objective ‘‘which will allow the RBNZ the most flexibility when they are responding to a dualtarget of price stability and maximising employment.’’