Less fire, more ice-water please, governor
RBNZ chief ’s thin skin hurting his credibility as he tries to marshall support for inflation fight
AThe Governor of the NZ Reserve Bank would have been among ‘friends’ at the recent IMF-World Bank meeting in Washington DC. Many of those peers are also facing an avalanche of criticism.
drian Orr frequently presents as so thin-skinned that he must be approached with extreme caution to avoid what could usefully be termed a “Vesuvius” moment.
In my view, it is well past time that Orr grew a hard shell, faced up to probing questions with frankness and more respect for his interlocutors, and combined that with the necessary gravitas to take the inflation fight public and instill confidence so that Kiwis are united behind what should be a single-focused endeavour.
Right now Orr presents as an inept manager who has struggled to retain the confidence of the “markets” at a time when it is essential that there is broad consensus on the measures necessary to tame inflation.
This is an issue that the Reserve Bank board should have addressed by now. But there appears to have been little overt coaching of Orr as to how to modify his prickly temperament.
And short of a change of government, the Opposition politicians — and many from the market who openly condemn his reappointment — are stuck with him. This is not tidy.
But it is also not unique.
The Governor of the NZ Reserve Bank would have been among “friends” at the recent IMF-World Bank meeting in Washington DC.
Many of those peers are also facing an avalanche of criticism.
All of the central bankers from the “five nations” economic grouping in which Finance Minister Grant Robertson takes part — the UK, Australia, US and Canada — have recently been slammed.
Here’s just a taste of recent headlines.
Andrew Bailey, who is Governor of the Bank of England, has had to rein in inflation galloping along at its fastest pace in 40 years: “Worst Bank of England boss ever takes risky gamble on inflation — better be right” — screamed one British red-top.
In Australia, Reserve Bank Governor Philip Lowe is getting terrible press. “Lowe Blow” and “Take a Hike” were two recent frontpage newspaper headlines. “We’ve had our Phil” was another.
The Canadian Governor Tim Macklem is also shrugging off attacks by Opposition parties and is standing firm on the independence of his central bank following attacks on its policies.
Even Federal Reserve chair Jerome Powell has been going “where no central bank chief has gone in decades: whacking the economy and risking a recession right before a heated election.”
But it’s a fat lot of good blaming Orr alone for the “poverty effect” which is in fact being felt through much of “the West” as central bankers try to crunch soaring inflation through raising interest rates yet maintain “sustainable employment” — a frankly ridiculously balancing act that would test the most adroit high wire exponent.
This current state of affairs suits the politicians and the financial sector alike. Each are absolved from encouraging the unsustainable “wealth effect” in the first place in New Zealand to alleviate the impact of the Covid pandemic. This was manifest here by a huge escalation in asset prices and cheap money to sustain employment.
It’s notable that a house price correction was eminently forseeable once the Reserve Bank had to start hiking interest rates to tame inflation — that’s just basic math. Clearly things are fraught as the interest rate firming cycle bites, particularly on the mortgage belt.
There are questions over the extent to which Orr’s political critics are prepared to do their bit (if in Government) to cut sufficient spending to take more pressure off the central bank’s monetary policy positioning, and to what degree the financial sector, particularly trading banks which are posting record profits, will cut customers some slack as the higher mortgage rates impact.
As Orr recently warned the Infinz conference returning to low inflation will, in the near-term, constrain employment growth and lead to a rise in unemployment.
“The actual extent of this trade-off remains unclear, however, given the significant labour shortages globally and the very different means of employment being adopted postCovid.
“Importantly, it is highly unlikely that we are at maximum sustainable employment if inflation is still high and variable.”
Orr’s contract was extended for a further five years this week ahead of a Reserve Bank review which found monetary policy should have been tightened earlier in 2021 including by raising the official cash rate, and curbing or halting the large-scale asset purchase programme earlier.
“Beginning the monetary policy tightening earlier in 2021 would not have fully offset the strong inflationary impulse stemming from a series of supply shocks, including Russia’s invasion of Ukraine.”
There’s plenty more besides but it stops way short of the fully independent review that would tell New Zealanders how the vaunted “wealth effect” lauded by policymakers in 2020 turned into the “poverty effect” two years later and how we bust the cycle.
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