Reserve Bank governor ‘too much of a celebrity’
A celebrity Reserve Bank governor is a shock to New Zealand businesses, an Auckland University economist says.
Robert MacCulloch said new governor Adrian Orr was a significant change from previous governors of the central bank, and that could have a negative effect on business confidence.
He felt Orr had changed the role from a serious office to one that catapulted him to some sort of national celebrity, which went against the traditions of the Reserve Bank. ‘‘The central bank is a critical organisation in our country and there is decades of tradition, extremely precious tradition, of trying to ensure the central bank is independent of political pressure and influence and from vested interests.
‘‘There is a view built over the decades that has worked very successfully in my view ... that the central bank governor should be conservative, choose words carefully ... The idea was this is an organisation that has the serious business of setting interest rates and banking regulation. It needs boring but boring in a good way type of people.’’
The bank’s recent 50 basis point official cash rate cut, to 1 per cent, was a risky move, MacCulloch said. ‘‘You have to be extremely careful that sort of decision doesn’t backfire.’’
If the bank said it was cutting rates drastically to boost the economy, some people would take it to mean it was worried about the economy. That could stop businesses investing, which could lead to further declines in business confidence. MacCulloch said the US Federal Reserve had been careful to pitch its recent cut as part of a solid economy.
Orr was not available immediately to comment for this story.
Economist Cameron Bagrie said he thought the bank had good intent behind its 50 basis point cut. ‘‘But I think they miscalculated how much it would spook businesses and savers. We don’t normally think too much about the impact lower interest rates have on savers but that side of the ledger is very nervous at the moment. Their savings nest egg doesn’t look great in the current interest rate environment.’’
Infometrics chief forecaster Gareth Kiernan said MacCulloch’s criticism reminded him of cricket umpire Billy Bowden.
‘‘He received a lot of flak for being overly flamboyant and drawing too much attention to himself. That sort of thing doesn’t matter if you are getting the critical decisions right but as soon as you get one wrong, it is easy for people to ... say you weren’t focusing on your core job.’’