Reserve Bank board backs Orr but Opposition parties aghast

Adrian Orr’s reappointment as governor of the Reserve Bank could be short-lived if National and ACT win the next election.

The Government is facing a backlash from the Opposition after reappointing Orr for another five-year term, while high interest rates pile pressure on household budgets already feeling the squeeze from inflation.

Finance Minister Grant Robertson told Parliament yesterday that the Reserve Bank board unanimously supported Orr’s reappointment, and it would be politicising the role to go against that recommendation.

Orr has come under pressure, alongside other central banks, for lowering interest rates to support the economy during the pandemic – a policy which may have contributed to inflation. Interest rates have since been hiked in the hopes people will start spending less, which will dampen the economy.

Opposition leader Christopher Luxon said a future National government would commission an independent review of its monetary policy to determine whether it had confidence in Orr, and had asked for him to be reappointed for one year to allow it to do so should it win the election.

He earlier said he was ‘‘shocked’’ at Orr’s reappointment.

ACT Party leader David Seymour said Orr was being ‘‘handsomely rewarded’’ with his reappointment after being an ‘‘architect’’ of inflation.

However, Robertson said it wasn’t fair on a future government to limit the governor’s role to one year.

Since the 1980s, central bank governors have had security of tenure on the basis they should be able to conduct monetary policy without the fear of dismissal by any particular government.

It comes after Prime Minister Jacinda Ardern questioned the banking sector’s billion-dollar profits amid an inflation crisis which has hit the poorest households the most.

Pandemic policy responses – including from the Reserve Bank – have played a role in bank profits by driving up asset prices.

The Reserve Bank dropped interest rates in 2020, which made loans cheaper, and drove up housing demand. House prices and home loans hit record highs, the former surging 20% that year, adding to profits for banks.

The Government also handed out billions of dollars to bolster the finances of households and businesses, and New Zealanders have for the most part been able to keep servicing their debts.

But rising interest rates will make that more difficult, and the bank has warned rising mortgage rates and falling house prices could land more people in negative equity – where their debt is higher than their property’s value.

Robertson said the Government’s accounts remained resilient. Treasury yesterday released the interim financial statements for the three months ending September 30 which showed the operating balance before gains and losses recorded a deficit of $2.6 billion, which it said was largely in line with forecast.

Net debt was at $71 billion, or 19.8% of GDP, but Robertson warned global financial instability will put pressure on the books.

‘‘We will continue to responsibly manage our finances and that means tough choices will be required as we tread a pathway back to surplus,’’ he said.

Christopher Luxon said a future National government would commission an independent review of its monetary policy to determine if it had confidence in Adrian Orr, right.