Central bank boss lauds ‘sweet spot’
New Reserve Bank governor Adrian Orr says his first major call has been the easiest he has made in more than a decade, with the central bank finding itself in a ‘‘sweet spot’’.
Orr, a career economist who spent the past decade as head of the New Zealand Superannuation Fund, left the official cash rate (OCR) unchanged yesterday at 1.75 per cent, where it would remain ‘‘for some time to come’’.
‘‘The direction of our next move is equally balanced, up or down. Only time and events will tell.’’
None of the economists who observe the bank expected a different decision, but Orr’s first appearance was highly anticipated. His statement included greetings in English, Ma¯ ori, Fijian and even sign language, celebrating New Zealand Sign Language week.
Although the New Zealand dollar dropped sharply when his statement was announced, as Orr gave a clear signal that he could cut the OCR further, the tone of his comments was positive.
‘‘We’re in a good spot. We can keep the OCR where it is for a considerable period of time,’’ Orr told journalists.
‘‘The economy is well balanced, employment has been very strong, inflation has been low . . . I have started in what I would call a sweet spot.’’
Economic growth and employment ‘‘remain robust, near their sustainable levels’’, Orr said, adding that demand growth had been led by an ‘‘unprecedented’’ increase in employment.
‘‘The number of willing workers continues to rise, especially with more female and older workers choosing to participate.’’
Since the weeks leading up to the election, headline business confidence has plunged, while own-activity measures – how much activity individual businesses expect within their operations – has softened.
Orr questioned the fall. ‘‘I’m surprised at how low business confidence is. How does that matter? I’m not sure. Generally it’s businesses’ sense of their own activity that provides a better indication of what they themselves will do.’’
Orr’s statement said business investment ‘‘should’’ increase. However, he clarified that he was pointing to the central bank’s projections, rather than what could have been seen as advice.
‘‘Given the capacity constraints that are coming through, why wouldn’t business be investing?’’ he said.
‘‘Given the level of interest rates, the state of balance sheets across the business sector, it is an opportune time, as it is for the Government.’’
Economists immediately praised Orr’s delivery. ‘‘O is for Orrsome,’’ Kiwibank chief economist Jarrod Kerr wrote. ‘‘The statement was clever in its simplicity. The message was crystal clear and gave New Zealanders some certainty on interest rates.’’
ASB’s Nick Tuffley said Orr’s statement, a change in structure from previous ones, delivered ‘‘greater clarity and a swiftly digestible message’’.
The Reserve Bank recently conducted a survey of what media outlets thought of the bank’s communications and the answer was ‘‘not much’’, said Orr, who acknowledged the central bank had not been open.
‘‘Our challenge is to speak in plain English as opposed to a hi-tech scientific language,’’ Orr said.