“Just the place for a Snark! I have said it twice:
That alone should encourage the crew.
Just the place for a Snark! I have said it thrice:
What I tell you three times is true.”

(Lewis Carroll, The Hunting of the Snark)

This was only the new Governor’s second OCR announcement, but the pattern seems to be getting quickly re-established.

This was the Governor in May

The emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to our 2 percent annual target.

And this was the Governor today

inflation is expected to gradually rise to our 2 percent annual target, resulting from capacity pressures.

But this was the former (but unlawful) “acting Governor” in March

Over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range

And this was Spencer in his first pronouncement last September

Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term.

And this was the former Governor a year ago

Non-tradables and wage inflation remain moderate but are expected to increase gradually.  This will bring future headline inflation to the midpoint of the target band over the medium term

In one form or another, in fact, it was the story he told throughout his five year term.

And yet it just hasn’t happened.  And, as I illustrated the other day, market prices still don’t suggest it is expected to happen.

In the real world, saying it over and over again doesn’t make it any more likely to happen.   It might happen nonetheless –  there is a great deal of uncertainty about macroeconomics – but the Reserve Bank still isn’t giving us a compelling story as to why, having been wrong for years, we should now believe they have it right.  As I noted at the time of the May MPS, those doubts were only increased by his enthusiastic endorsement of his predecessors’ record

Perhaps even more startling, was his response when asked a question in which it was noted that Graeme Wheeler had failed to hit the inflation target midpoint, and Orr was asked whether he would be happy to be judged on his performance against that metric.  That seemed to set the Governor off in defence of his predecessors, claiming that the economy was in near-ideal cyclical sweet spot, and that he could not imagine a better place to start from as Governor.  A bit later he chipped in that he thought the Bank had been doing a ‘remarkable” job in forecasting core inflation –  a variable that hasn’t been anywhere near the explicit 2 per cent target since that target was put in place by Bill English almost six years ago. 

One can’t expect a full story in a one page OCR announcement such as today’s, but there wasn’t anything much more compelling in the MPS either.  And three months into his term we have not had a single on-the-record speech from the Governor about monetary policy, which is still his prime statutory function.     Lots of chatty greetings, but not a great deal of substance.

And all in a global climate that seems to be getting much more hostile, and risky.

But it isn’t inconsistent with the Bank’s Statement of Intent the other day.  In it, we are told that

 we will promote a deeper understanding at the Bank of tikanga Māori and te Reo Māori.

with no obvious connection drawn, that I could see, with anything in the Bank’s statutory mandate.  It will no doubt win the Governor feel-good points with his political masters, as he fights turf battles in the months to come.  But there was still nothing at all on ensuring that the Bank, and New Zealand policymakers more generally, are ready when the next serious recesssion hits –  stuff at the heart of what we have a monetary policy and central bank for.

In his statement today, the Governor included this, largely meaningless, line

The Official Cash Rate (OCR) will remain at 1.75 percent for now. However, we are well positioned to manage change in either direction – up or down – as necessary.

Of course he can move the OCR up or down 50 basis points (to me, the data –  as distinct from the vapourware masquerading as economic forecasts – suggest down).  But the big problem is that if circumstances ever require him to cut the OCR more than say 250 basis points –  and something in excess of 500 basis points has been more normal in serious downturns, here and abroad –  he can’t do it.  He knows it, and the markets know it.       Failure to do anything meaningful to reduce or mitigate those risks, and to communicate those plans to the public and markets, risks accentuating any downturn when it comes.

(I’ll be away for the next few days, but will come back next week to write about the Bank’s speech earlier this week on digital currency, perhaps best summarised as “how best to serve the banks, rather than the public”.)