Peter Nicholl was the Reserve Bank’s chief economist back when I joined the Bank and later oversaw (from the Bank’s side) the entire overhaul of the Reserve Bank Act in the late 1980s that culminated in the model that governed the Bank for decades (and more recent changes are mostly in the nature of refinements). Peter served as Deputy Governor, on the policy side of the Bank, for a number of years in the 1990s before heading off to be Executive Director (for NZ and a bunch of other countries) at the World Bank. He then became Governor of new central bank of Bosnia. Peter seemed to be in his element there (I’ve heard a few of his stories at times over the years), and after serving as respected Governor there for seven years was a part-time consultant to that central bank for a number of years. He has also been adviser to a number of other central banks. These days, retired in the Waikato, he writes a regular column for a couple of the local papers, and tells me quite a few of them in recent years have touched on Reserve Bank issues.
This is his column for today’s Cambridge News, focusing on the very-evident governance failures for which the entire board is responsible. As he notes, it isn’t written for a geeky economists or Wellington policy nerds but for ordinary heartland readers. It is also focused on the Reserve Bank players rather than the interactions involving the government. He has given me permission to share it.
RBNZ has gone Third World.
I have written two columns previously on stories about what is happening in NZ that I would expect to see in a third world country but not in NZ. As someone who worked in the RBNZ for twenty-two years and was proud of the institution, I never expected to be able to add the RBNZ to my list of NZ third-world stories. In fact, describing what has happened to the governance of the RBNZ over the last few years as third-world is unfair to most third-world countries.
The governance saga came to a dramatic point in March when the Governor, Adrian Orr, suddenly resigned. It hit the headlines again recently when the Chairman of the RBNZ Board, Neil Quigley, also resigned suddenly. But the problems had started building up some years earlier. During the period that Adrian Orr was Governor the staff of the RBNZ rose from 250 to 650. In the early stages, the growth of the public sector was being actively encouraged by the then-Government. But with the change of Government in 2023, the public sector began to be down-sized. Somehow the RBNZ didn’t hear that message-or didn’t think it applied to them. They continued to increase their staff numbers. This is the organization which had been raising interest rates in order to constrain oher people’s expenditure and bring inflation back within its target range. They certainly weren’t saying to people ‘do as we do’. They were saying ‘do as we say’. The spending spree has been largely blamed on Adrian Orr and his empire-building. But the governance question that needs to be asked is where were the Board? Did they agree or were they steam-rolled?
The RBNZ isn’t part of the annual budget cycle. It negotiates a funding agreement with the government every five years. The latest five-yearly negotiations took place early this year. Like Oliver Twist, the RBNZ asked for more – about $ 200 million more. But unlike Oliver Twist, the RBNZ had not been hungry. It was in fact over-weight. The Treasury objected to the request for more and Orr lost his cool and resigned. The Chairman said then that Orr’s sudden departure had nothing to do with the funding negotiations.
It has now become clear that Orr’s departure was caused by the arguments over RBNZ funding and the first arguments were within the RBNZ. Orr and the Board had different views. Despite this, the proposal the RBNZ first put to the government was Orr’s view – a request for $ 200 million more and a further 100 staff. When that was rejected and Orr resigned, I was surprised by how quickly the RBNZ Board was able to come up with a lower request. But it has since been revealed that that was the number the Board thought was appropriate in the first place. The fact that they initially went along with the request for more reflects very poorly on the Board.
The next few months will reveal who will be the next Governor and the next Board Chairman of the RBNZ. They will come into an organization with its reputation in tatters. It is another example of the old adage that good reputations take a long time to gain but can be lost very quickly.
croaking cassandra 
The entire RBNZ Board should be fired for their now-proven ineptness. The new Governor-hiring process that was largely completed by the now disgraced Chair Quigley and his Board of status-hungry empty vassels should be restarted. That process lacks legitimacy since the incompetent Board went and binned the applications of outstanding candidates. Willis, who engaged in the whole tawdry cover-up, should resign. Only when a broom cleans away the old rubbish can trust and confidence in the RBNZ be restored.
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Commenter Peter Wood had difficulty with the system when he tried to leave this comment:
“Thank you Michael for your persistence in telling this story and Robert for your very apt responses. Peter Nicholl too for drawing it all together. It all took so long that we may be forgiven for asking what made telling the truth so difficult? Will we ever know what impelled the fairy stories from those in charge of perhaps our most important public institution?
“If it is a matter of trust, and surely there is no other view of it, the country needs to see very clearly that whatever next steps are taken and whoever is appointed as Governor and Board, those making the appointments have a very clear idea of the vital nature of the positions, and the integrity and experience needed for their accomplishment.”
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Michael, In previous blogs you described how it took forever for Finance Minister Willis to reluctantly – and only start – coming clean – that she knew more about what caused Governor Orr’s departure than she pretended at the time. She told the Finance Expenditure Committee, with Treasury Secretary Rennie sat next to her, the first she knew about trouble with Orr was when Rennie texted her on 27 February (only just released under OIA). However in the midst of the blow-ups between Willis, Treasury and the Bank, the Prime Minister’s Diary says on 18 February 2025, starting at 8:30 am, the PM met with “Hon Willis, the RBNZ Governor, Treasury Secretary, PM Office’s adviser, and officials” in the PM’s Office. The day before at 2:30 pm Willis’ diary says she met with Treasury officials – explaining Michael’s “mysterious text” from Willis to Rennie on 17 Feb which says, “Are you coming to the 230”. I bet she knew what was going on regarding exiting Orr long before 27 February – which is the date Willis she said she first heard about these issues. Pull the other leg. Best Robert
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THanks Robert. That probably does explain the “are you coming to 230” and why it is within scope. That will have been the pre-MPS meeting
I’m 100% confident Willis knew what was afoot before 27 Feb – after all ,she ‘d been in that mtg Adrian stormed out of on the 24th, and there is no way there were no followups from that (whether Neil/Willis talking straight after the mtg, or contact – incl perhaps via her office – afterwards).
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What is mind boggling is the endless meetings between the PM, RBNZ Governor, Finance Minister and Treasury. The RBNZ now must rank as the least independent central bank in the world. Luxon continuously is giving the Governor a piece of his mind on interest rates, often within hours of OCR decisions, the Governor is running to the Beehive every two minutes. Whilst he allegedly shouts at the Finance Minister, she is turn has fits with him. They’re like a married couple. How the Nats & Labour can pretend the RBNZ is “independent” of political pressure is hilarious. Luxon and Willis don’t have the depth of knowledge about how central banking is meant to work to comprehend how they have trashed NZ’s single most important institution. Foreign investors beware.
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And while we may differ on this, in my view the Bank itself also lacks the senior people of gravitas, serious intellectual stature, and market/institutional credibility, which leaves something of a void for the politicians.
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We don’t differ at all on that matter. Folks think I have harsh over the top personal views on these matters. Far from it. Should I ever publish what former RBNZ Board Chairs, Governors, Assistant and Deputy Governors, Chief Economists and MPC members have told me about what has been going on at the Bank these past few years, it would blow people’s minds. But I can’t because they told me in confidence. Even though its true, the parties who felt wronged by exposing it would go berserk. On our small island it would become socially awkward. Its the likes of Willis, Luxon, Hipkins, Hawkesby, Rennie, Roche and that whole gang who are the ones that should go live in Australia and give way to the young smart Kiwis who they starved of opportunity. Its that new generation who should instead stay in NZ and replace the whole sad sorry bunch of inbred insiders.
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Good to know (I had wondered because you attacked me a few weeks ago for casting doubt on Hawkesby’s fitness for high office).
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Don’t worry. We all love u, Michael. I try not to be friends with anyone because then could be accused of having my own chumocracy. I don’t see anything half as interesting as what you write coming from boring Business Desk, NBR, the Herald’s econ editors. Seems to me they have such strong relations with the folks they are writing about that its all insipid, and watered down.
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Thank you for this, I’ve been following your investigation with curiosity, and shenanigans aside, one question that I haven’t seen asked/answered anywhere is this: was there ever any rationale given for the staff increasing so dramatically?
I have a manufacturing background and it’s generally easier to justify – get n more staff and we can build x more widgets.
But I fail to see the reason for more than doubling the staff in an institution that seems to have been managing fine with, until recently, 250 staff.
Was it the additional requirements like full employment, the Labour govt put on them?
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I think it was a mix. There was an external IMF report that suggested they were light on staff in bank supervision etc. they were definitely too light on technology staff (and were caught in a cyber event about 5 years ago). There were a few new statutory functions. All that taken together might have justified going from 250 to 350 staff. They actually went to 660 and were aiming for 700+. That is probably explained by Orr being a (fluent and persuasive) empire builder with a weak board, and dealing with a Lab govt that was enabling big increases in many govt depts around Wgtn.
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