Orr and the art of knowing when to duck
Reserve Bank governor has learnt to adopt a lower profile
Adrian Orr has learnt it is more prudent to resort to subterranean warfare than continue to picked off in the open by powerful adversaries. That was obvious from this week’s official cash rate (OCR) announcement, where the Reserve Bank governor effectively sheltered behind his team — though he would not call it that — instead of jawboning the market in his usual style.
It’s become a commonplace for Orr’s critics to slag him off as tempestuous and call for him to adopt the clothes of a conservative central bank governor.
That has never been this Reserve Bank governor’s modus operandi.
His capital review of the banking system quickly morphed into open warfare, with major trading banks threatening that all manner of calamities would befall the New Zealand economy — including rationing credit to their business clients — if Orr held firm to the Reserve Bank’s proposed capital targets.
They called Orr’s bluff. But the targets remained front of stage while the central bank’s consultation period continued.
Finance Minister Grant Robertson was well acquainted with Orr’s personal quirks before the Reserve Bank board unanimously recommended him as their new governor.
But Robertson welcomed the fact that the Neil Quigley-led board had been able to secure a governor with such a strong track record of delivery and public service.
“Orr has the technical and leadership qualities required to be governor and CEO of the Reserve Bank,” said Robertson when announcing the appointment in December 2017. “Further, I consider that he has the skills necessary to successfully lead the bank through a period of change.”
These are unconventional times. Orr put a nervous business sector on edge when the bank made a double cut to the OCR in August. This week’s decision to leave the OCR at 1 per cent was simply prudent, leaving something in the tank for 2020 instead of using up all the bank’s conventional arsenal at this point.
It’s easy to overlook the fact that New Zealand is still growing. Company profit results still show that. As CEOs responding to this year’s Herald Mood of the Boardroom survey indicated, ever decreasing interest rates were not the key factor when it came to making investment decisions.
A 1 per cent OCR is a historic low for New Zealand.
Businesses are nervous that the Reserve Bank might opt for quantitative easing and/or negative interest rates in the future — even if that course became necessary if there was some external shock.
There are two more important milestones ahead.
On November 27, the Reserve Bank releases its next Financial Stability Report, which will give further insights into pressure points with the economy.
On December 5, the bank will release its final decisions on its capital review.
Assistant governor Christian Hawkesby told the Infinz conference the bank had listened to the market. While Hawkesby stopped short of saying the bank had responded to its critics, it had listened.
Neither Quigley nor Robertson is going to say so out loud. But it is obvious that Orr has taken on board counsel on how to get out of the fire. Both Hawkesby and deputy governor Geoff Bascand have done much of the talking in the past month.
Orr has held a private meeting with Robertson. It is likely that a prospective fiscal response has been discussed.
As Orr said to journalists this week: “You don’t have to keep shouting [about fiscal stimulus] . . . I imagine it’s been heard”.
Ever decreasing interest rates were not the key factor when it came to making investment decisions.