Orr to MPs: ‘Step back and breathe’
Reserve Bank governor Adrian Orr has invited MPs to ‘‘step back and just breathe’’ when considering the bank’s track record on inflation and told them it is unemployment rather than falling house prices that create the most financial stress.
Appearing in front of Parliament’s Finance and Expenditure select commitee, Orr also would not be drawn by the National Party into criticising goverment spending, saying that was no longer fuelling demand growth.
Orr, who was in unapologetic and robust form, said in response to questions from National’s revenue spokesman Andrew Bayly that he would continue to have no regrets over the central bank’s management of inflation.
‘‘Let’s step back and just breathe and think about what we have gone through,’’ Orr said.
Disregarding the rising cost of food, fuel and construction, over which he suggested the bank had little influence, prices were rising at a rate of between 3% and 4%, he said.
‘‘Given the nature and scale of the economic shocks we have come through, I am positively surprised how well we have come through this activity. We cannot do anything about global oil prices,’’ he said.
Rising inflation has prompted central banks around the world, including the Reserve Bank, to raise interest rates, but Orr denied the bank was now playing catchup, saying the official cash rate was still only at 1.5% whereas a ‘neutral’ rate would be 2%.
Orr played down the risk to financial stability from rising interest rates, saying that the balance sheets of banks and households were ‘‘on aggregate in a very strong position’’. People who took on a lot of debt buying houses over the past year would experience some financial stress and might need to ‘‘alter their spending behaviours’’, he said.
If they found themselves in ‘‘negative equity’’ with their mortgage debts outvaluing their homes, that did not mean they had to sell their houses, and just that they would have suffered a temporary loss on their investment, he said.
Orr appeared to signal last month that the bank believed government spending could or should become more ‘‘targeted’’, but he told the committee that government spending was now a drag on growth, rather than fuelling demand growth in the economy.
‘‘When we’re looking at monetary policy and saying ‘where’s the biggest impulses to change in pace coming from’, at present, it’s not the Government.’’