Bank boss too often missing in action
Of 16 major speeches from Reserve Bank leadership in 2016, governor gave only two
Job Description: Governor of the New Zealand Reserve Bank — Dormouse need not apply. This is arguably the most influential — if unelected — role in New Zealand outside that of the Prime Minister or Minister of Finance.
But when Graeme Wheeler yesterday said he would not seek a second term (his current five-year term expires just three days after the September 23 general election) those outside of the Wellington Beltway or the senior business sector could be forgiven for asking: “Who he?”
Wheeler should have earlier called out the Prime Minister and Finance Minister on their tardiness in developing policy responses to counter the house price bubble. But he was late to the party.
Notably, the bank was also tardy in its own policy responses, thus earning itself a rebuke from then Prime Minister John Key, who rather cynically tried to take the focus off a Government that was running immigration hot for its own ends.
A more adept governor should have been able to persuade the politicians that slowing the boom was a job for both the politicians and the central bank. And that it was necessary for NZ’s long-run stability.
But when it finally came time for Wheeler to step up and tackle the “Beehive” head on it was deputy Grant Spencer who delivered the bank’s message.
Where Wheeler did impress was with his assessments of where the global economy was heading. For instance, he was far ahead of Treasury in assessing the depth and length of the dairy commodities slump and the impact on Chinese exports receipts and farm debt. Likewise with the level of household debt that remains a major vulnerability for a NZ economy too reliant on immigration, tourism receipts and construction (including earthquake rebuilds).
Others have singled out the bank’s failure to land inflation at the mid-point of the 1-3 per cent annual target band. Frankly this is of less concern than the inability to tackle the housing bubble — a move that has transferred considerable wealth to middle-class Kiwis but ensured too many young people will have to shoulder far too much debt if they are to own decent homes.
Compared with his predecessors Wheeler has not staked out a vision that has gripped the public as Don Brash did with his focus on inflation or Allan Bollard did with the central bank’s response to the global financial crisis.
Maybe it was the lengthy time Wheeler spent away from New Zealand that tempered his public positioning. He was, after all, in the more refined climate of Washington DC in various senior roles at the World Bank before he returned to Wellington to become governor. But the New Zealand central bank governor’s role requires more than superior administrative skills and diplomacy. New Zealand’s next central banker should not be expected to use a megaphone to communicate with the public — whether via the news media or through speeches. But the communications role is too important to offload to the governor’s lieutenants as Wheeler did last year. It’s notable that of the 16 major speeches given by the leadership of the Reserve Bank last year, Wheeler gave only two of them — a third speech was delivered on his behalf by another senior official.
This combined with the abolition of the “lockup” where journalists used to be able to tease out the background to official cash rate (OCR) decisions — because TV3 broke an embargo — was a retrograde step.
Delivering the occasional counterpunch to politicians is part of the role.
No one ticks every box when it comes to excelling as a central bank governor.
There will be internal candidates, former Reserve Bank officials such as Rod Carr and Adrian Orr may well apply, and we can also expect international candidates.
Finance Minister Steven Joyce sensibly deferred the decision on the new Reserve Bank governor due to the election timing. Deputy Governor Grant Spencer will step up as governor for six months after the election. But Spencer will not be a candidate for the job.
Joyce and Spencer have also agreed there will be no change to the policy targets agreement while the latter is acting governor.
Not only was Joyce’s decision scrupulously fair given the potential for a change of Government.
But it also avoided a showdown with Labour’s finance spokesman Grant Robertson, who is known to have wanted to be consulted on the appointment if it were to be made before the election.
Robertson is also known to favour widening the decision-making tree for monetary policy decision-making.
While Reserve Bank governors do consult with their boards, the decision is theirs alone.
The Labour spokesman is keen to explore whether that responsibility should be shared and whether the thinking and discussion behind such decisions should be published.
The Reserve Bank board is chaired by Professor Neil Quigley. The other members are deputy chairman Kerrin Vautier, Rod Carr, Bridget Coates, Jonathan Ross, Tania Simpson and Keith Taylor.
While they will no doubt play a sounding board role the decision on the next Reserve Bank governor will be for the Minister of Finance — whoever that may be.