(And other economics agencies of government, but the Reserve Bank should be the highest priority given the extent of the decline and the substantive importance/powers of the institution.)

On Friday my post focused on the (severe) limitations of the members of the new Reserve Bank Board. Together, they look as though they would be a well-qualified (perhaps a touch over-qualified) group for the board of trustees at a high-decile high school……but this is the central bank and prudential regulator.

I had a couple of responses suggesting that, if anything, I was pulling my punches, understating the severity of the situation, when it came to the Reserve Bank. One person, who preferred to remain nameless (having high level associations with entities the Bank regulates), indicated that I was free to use their comments provided it was without attribution. These were the comments:

The situation is parlous: inept, multi-focussed but wrong focus, terrible judgement, appalling hires, complete absence of appropriate governance, woeful expertise, [backside]-covering of the regulator rather than interaction. I have zero confidence in their leadership, judgement, processes, balance of hires, and particularly governance governance which has been enabling of dross.  

I guess the Governor could, in response, point to the recent NZ Initiative survey (of the regulated) suggesting the Bank’s standing among that community had improved in recent year (it was never clear to me why, other than the decision to move one key individual who had had significant responsibility for prudential policy).

So views will differ, and if – based mostly on what we all see – my views are a bit less harsh than those of some, it seems clear to me that there is a significant problem, and that with the new Board appointments the situation is worsening. The entire new governance and decisionmaking structure – overhauled over several years – is now in place with an MPC where serious expertise is explicitly a disqualifying factor for appointment as an external member (the people who are supposed to represent a check on management), and a Board where in practice serious subject matter expertise (financial stability and regulation or macro) also seems to have been treated by the minister as a disqualifying factor. And all this with a senior management team that is inexperienced (3 of the 4 internal members) or in the case of the Governor mediocre on a good day and more interested in other things (“patently inadequate” for the job was the stronger description of my commenter). Oh, and a Minister of Finance who doesn’t seem to have much interest in building excellent institutions or achieving excellent policy outcomes, who falls short of the standard citizens should be entitled to expect.

What we don’t know is how the National Party Opposition see things. They are their partner now lead in the polls and seem to have a pretty good chance of forming a government after the next election. Since Simon Bridges late last year, just after becoming the Finance spokesperson, said that National would not back reappointing Orr and was shut down within hours by his new leader, we’ve heard nothing much at all from National. You get the sense that the Governor is not exactly their cup of tea, but what (if anything) do they propose to do and say. They (and the other parties) were required to be consulted on the Board appointments. But whether they were happy, or pushed back vigorously, we have heard not a word from the new Finance spokesperson. Silence risks counting as (perhaps resigned) assent.

The Governor’s current five-year term expires in late March next year (ie less than 9 months from now). The process for filling the slot is likely to be getting underway very soon, and it would surprise me if the government (and the Bank) did not want to have everything resolved before Christmas. Under the Act, the Minister can turn down any candidate the Board nominates, but the Minister cannot impose his or her own candidate – ultimately whoever is appointed must be nominated by the Board. There is, of course, nothing to stop the Minister telling the Board in advance that he would not accept a nomination of a particular person or class of persons. In practical terms, there is also nothing to stop the Minister telling the Board who he might like them to nominate – although with a capable and independent Board that approach would risk backfiring.

Most RB-watchers treat the reappointment of Orr as pretty much a foregone conclusion (assuming the Governor has not found greener pastures in which to labour). At present, I agree. But that is partly because of the silence where one might have hoped there was an effective political Opposition. If National is content to resign itself to another five years of Orr – using his platform as head of a technocratic non-partisan institution to champion personal left-wing causes, operating with his bullying and divisive style, presiding over a sharp downgrading of the Bank’s research and analysis capability, losing billions of dollars for the taxpayer and then (together with the surge in core inflation) brushing it all off with a “I have no regrets” – they should just keep right on as they are.

But if they aren’t content, they should be saying so, forcefully and often, now. If Labour really insists on reappointing Orr, there is not much formally that can be done to stop it – a brand-new board, selected in part by Orr, is simply not going to decline to recommend reappointment. The only chance of him not being reappointed (assuming he still wants the job) is for Labour (Robertson) to decide it isn’t worth it for Labour to continue to back Orr. We should hope for Governors who are broadly acceptable across the spectrum (not necessarily the ideal candidate for the other side, but broadly tolerable nonetheless) – after all, they wield a great deal of power, can’t easily be dismissed, and Labour itself inserted the new clause in the law requiring the Minister to consult other political parties in Parliament before appointing a person as Governor. “Consult” does not mean “obtain consent or support”, but in a context like this it should mean “take seriously very strong opposition, especially from a range of parties, or perhaps from the largest other party”. It was, after all, Labour that just introduced the provision. But waiting until December to privately express concern is a pathway towards just being ignored – by then the reappointment process would have a lot of momentum behind it already. Now is the time to start speaking out, carefully but forcefully. If they care.

In the New Zealand system, most official appointees have fixed terms and cannot simply be dismissed and replaced immediately by a new government. Mostly, that is a good thing. The position of Governor of the Reserve Bank is one of those positions. So, it seems, are appointees to the MPC and the Board.

Each of these individuals or classes of people can be replaced at any time, but only “for (just) cause”, and what counts as “just cause” is defined in the Act. In the case of the Governor

The provisions around removal the Governor from office seem more tightly drawn than they were under the previous legislation (which may have something to do with the formal responsibility for many things the Bank does having been shifted to the Board).

Much as I am critical of a lot of what has happened at the Bank during Orr’s tenure, none of it (individually or collectively) adds up to enough to represent a credible basis for removing him. Are $8bn of LSAP losses dreadful and without excuse? Sure, but it was the Minister of Finance who agreed to the policy and the risks. Is it bad that inflation is at about 7 per cent? Sure. Could the Bank have prevented core inflation getting above 4 per cent? Most probably, and I think there should be searching criticism of the Bank’s failure, and lack of transparency/accountability. But it just isn’t enough to sack a Governor mid-term, especially when (a) so many other countries are seeing something similar, and (b) the median market economist/commentator wasn’t much better when it mattered (last year). One might reasonably lament the decline in the analytical and research output, some poor appointments and massive losses of senior staff. One might lament the diversion of focus onto non-central banking things like the tree gods and climate change. But no one is ever going to sack an incumbent Governor mid-term over such failings (and the Minister often seems to have welcomed the diffusion of effort), bearing in mind the risk of being judicially reviewed, and the attendant lengthy period of (market) uncertainty. It just won’t happen (and probably shouldn’t).

Which is why, if National were to be seriously bothered about Orr they need to be speaking out now and focusing on the looming reappointment.

Fortunately, even if reappointment is the key, there are other levers for promoting change. The Monetary Policy Committee’s Remit can be altered (and, no doubt, the forthcoming financial policy one), including to take out the woolly and irrelevant (to monetary policy) references to sustainable and low carbon economies. National is proposing to delete the employment limb of the target (on this, I agree with the Governor, that the amendment adding it hasn’t made more than cosmetic difference, and nor would reversing it). Ministerial letters of expectations aren’t binding, but they are one more lever, and a new government could make clear from the start that it expects the Bank to focus on its core responsibilities, expects a lift in the quality and range of research outputs etc. The Minister could also amend the rules around the MPC to, for example, require individual votes and reasons for those votes to be disclosed, and to create an expectation that individual MPC members could be expected to make speeches, give interviews, front FEC, and generally be accountable for their view. Small legislative changes to move the responsibility for MPC appointments purely to the Minister (not mediated by the Board) would also be a step in the right direction, weakening what is now a heavy degree of gubernatorial control over monetary policy and the committee.

And then there are the appointees themselves. By the time a possible National government takes office, Orr may be just 6-8 months into a second five year term. But quite a few of the new Board members have been appointed for terms that expire in mid-2025. A new government should begin looking early for high quality people, with strong subject expertise, to replace them. And what of the MPC? There are three external members. One has a term that expires next April, and will have either been reappointed or replaced by the current government. But one member – Peter Harris, who has had close Labour Party associations – has an extended term expiring next October. That should be a date that disqualifies a permanent appointment being made prior to the election (it still puzzles me why Labour chose that date – he could easily have been extended for 2 years rather than 18 months). And the final member has a term expiring in April 2025. It should be made clear to all involved that there will no longer be a bar on appointing people of demonstrated ongoing excellence and capability in macroeconomics and monetary policy, and that the Minister would have a strong preference to appoint at least one such person at the earliest opportunity.

And then there is the budget. The Bank is an unusual government agency, in that it is not funded by annual appropriations (in the way many important – with aspects of independence – agencies are) but through a five-yearly funding agreement, governing how much of its own earnings can be used as operational spending. There are a number of flaws in this procedure but it is what it is, for now at least.

The Bank was given a massive increase in funding in the agreement approved in 2020. But one of the interesting (broadly incentive-compatible) aspects of the arrangement is that permitted spending is specficied in nominal terms for five years. Above target or unexpectedly high inflation makes nasty inroads on the Bank’s real capacity to spend. As wages and salaries rise faster than originally allowed for, that bite is likely to be coming on soon. Moreover, although the agreement wasn’t signed until late Feb 2020, by the time a possible new government takes office (say next November) the Bank will be very conscious that the next round of negotiations will be looming before too long. The final year covered by the current funding agreement is 2024/25, but if you were the Bank (management and Board) you would be wanting some clear signals from the Crown fairly early as to how much the Bank might have available to spend in the following five years. An early signal (say by the time of the 2024 government Budget) from an incoming Minister of Finance that s/he was minded to materially reduce real Reserve Bank spending in the future funding agreement would affect choices the Bank was making from them. National seems to be struggling to identify expenditure savings, and while the Reserve Bank is not that big in the scheme of things, it is much bigger and more expensive that it was five years ago, and ripe for trimming down. The basic functions of the Bank haven’t changed, but the size of Orr’s empire has blown out. It should be pulled back. Ideally, the legislation should be amended to allow the Minister to better specify what money is spent on, but it should be made clear to the Governor and the Board that the Minister expects a ruthless focus on core functions (not, eg, a proliferation of comms or climate change people). The office of Governor might be much less appealing to someone like Orr if he was compelled to manage in that way. That, on this scenario, would not be a bad thing.

And all this without even touching on those mind-numbing documents like the Statement of Intent. The Minister can require a new Statement of Intent at any time, and the Bank must take seriously (“consider”) the Minister’s comments on a draft.

All this is by way of saying that while, if National cares about the Bank, it should focus now on building a climate where it is not worthwhile for Labour to stick by Orr (or where if they do it just looks like a poor and partisan appointment), there are plenty of avenues open to a new Minister to put pressure on to constrain the Governor’s behaviour, his dominance of the MPC process, his empire, his focus, his style and so on. But a new Minister has to want change, and be prepared to follow through consistently.

Finally on the Bank, it is fair to note that it is one thing to argue that Orr should not be reappointed, but quite another to identify an excellent potential replacement. There are no immediately obvious potential nominees of the stature required to begin credibly rebuilding the institution (Bank and MPC). That itself is a poor reflection on the way the Bank has been run for at least the last decade (contrast say the RBA or the Bank of Canada), and perhaps symptomatic of wider weaknesses now at the upper levels of the New Zealand public sector more generally. But just because there is no obvious single name now, isn’t a reason to stick with such a poor incumbent (and if there isn’t an obvious replacement, I can think of several who could, at least as part of a new team, do the job, and we should at least be open to the possibility of a foreign Governor (even if such an appointment might be less easy than it sounds)).

This post has been focused on the Reserve Bank. But there are other agencies a new Minister of Finance will have to pay attention to. There is little point expecting different outcomes if you leave the same people (and sorts of people) in place (and there is a wider question there about what sort of person a new government will replace Peter Hughes, the Public Service Commissioner) with in mid 2024). But the open question still is whether National really cares much about different outcomes, or is primarily interested just in gaining and holding office. Voters might like some idea of the answer.

The Reserve Bank Governor appears to have been communing with his tree gods again, and last week released a speech he’d delivered online to an overseas audience headed “Why we embraced Te Ao Maori”. It isn’t clear quite how many people were in the audience for this commercial event run by the Central Banking (private business) publications group, but I’m guessing not many. The stream Orr spoke in featured just him, a panel discussion on how “digital finance can drive women’s inclusion”, and a presentation on “how can central banks put climate change at the core of the governance agenda”. While it was called the “governance stream”, a better label might be the woke feel-good stream, far removed from the purposes for which legislatures set up central banks.

In many ways, the smaller the overseas audience the better, and I guess his main target audience was probably domestic anyway. He claims to be keen on the concept of “social licence” (personally, I prefer parliamentary mandates, deliberately adhered to and closely monitored) and no such “licence” flows from second or third tier central bankers abroad.

There are several things that are striking about the speech. Sadly, depth, profundity or insight are not among them.

Orr has now been Governor for just over four years (his current term expires in March). In his time as Governor he has given 23 on-the-record speeches (fewer as time has gone on)

The speeches have been on all manner of topics – although very rarely on the Bank’s core responsibility, monetary policy and inflation, a gap that has become more telling over the last year or so. Unfortunately, coming from an immensely powerful public official, it is hard to think of any that are memorable for the valuable perspectives they shed on the Reserve Bank’s core policy responsibilities or its understanding of, and insights on, the macroeconomy and the financial system. His Te Ao Maori speech is no exception, and is probably worse than average. From a central bank Governor.

In the speech, we get several pages of a quite-politicised black-armband take on what might loosely be called “history”. Perhaps it will appeal to elements on the left-liberal electorate in New Zealand (eg the editors and staff on the Dominion-Post). I’m not going to try to unpick it – it simply has nothing to do with central banking or the Governor’s responsibilities – although suffice to say that if one wanted to traverse history in a couple of pages, one could equally choose quite different points to emphasise. In essence, we have the Governor using his official platform to (again) champion his personal politics. That is – always is, no matter the Governor, no matter their politics – inappropriate, and simply corrodes the confidence that should exist that the Reserve Bank is a disinterested player serving in a non-partisan way the narrow specific responsibilities Parliament has given it independence over.

The speech burbles on. The audience is reminded of the tasks Parliament has given the Bank to do

But this is immediately followed by this sentimental bumpf

But – and rightly – “environmental sustainability, social cohesion and cultural conclusion” (whatever their possible merits) are no part of the job of the Reserve Bank. Parliament identifies the Bank’s role and powers, not the Governor. And all this somehow assumes – but never attempts to demonstrate – that some (“a”) Maori worldview is better for these purposes that either some other “Maori worldview” or any other “worldview” on offer. As for the “long-term”, a key part of what the Reserve Bank is responsible for is monetary policy, where they are supposed to focus on cyclical management, not some “long term” for which they have neither mandate nor powers.

Get right through the speech and you’ll still have no idea what the Orr take on “a” Maori worldview is. Thus, we get spin like this

Except that, go and check out the Bank’s Statement of Intent from 2017, the year before Orr took office, and the values (those three i words) were exactly the same. All they’ve done is add some Maori translations on the front. If anything, it seems more like a Wellington public-sector worldview (“sprinkle around some Maori words and then get on with the day job”), but Orr seems to sincerely believe……something (just not clear what).

Then we get the repeat of the “Reserve Bank as tree god” myth. The less said about it the better (and I’ve written plenty before, eg here). But even if it had merits as a story-telling device, it is substance-free.

We get claims about “the Maori economy”. Orr cites again a study the Bank paid BERL to do, the uselessness of which was perhaps best summarised by the report’s author at a public seminar at The Treasury last year, of which I wrote briefly at the time

Even the speaker noted that “the Maori economy” is not a “separate, distinct, and clearly identifiable segment” of the New Zealand economy

The last few pages of the speech purport to tell readers about their Maori strategy. There are apparently three strands. First, is culture

To which I suppose one might respond variously (to taste), “well, that’s nice”, “what about other world views?” and “wasn’t that last paragraph rather suggestive of the public sector worldview above – scatter some words and get on”.

Then “partnering”

There is more of that, but none of it seems to have anything to do with the Bank’s statutory goals, it is more about officials using public money to pursue personal political objectives. Incidentally, it also isn’t obvious how any of it reflects “a Maori worldview”. I’d think it was quite a strange if the Reserve Bank were to delete “Maori” from all these references and replace, say, Catholics (another historic minority in Anglo-oriented New Zealand).

The final section is headed “Policy Development” and you might think you were about to get to the meat of the issue – here finally we would learn how “a” “Maori worldview” distinctively influences monetary policy, banking regulation, insurance regulation, payment system architecture, the provision of cash etc. The section is a bit long to repeat in full, but you can check the speech for yourself: there is just nothing there, of any relevance to the Bank’s core functions. Nothing. No doubt, for example, there are some real issues – and real cultural tensions – around questions of the ability to use Maori customary land as collateral, but none of it has anything to do with anything the Reserve Bank is responsible for. And nothing in the text suggestions any implications of this vaunted ill-defined Maori world view for the things the Bank is supposed to be responsible or accountable for. And still one would be left wondering why, if there were such implications, Orr’s personal and idiosyncratic take on “a Maori worldview” would take precedence over other worldviews, or (indeed) the norms of central banking across the world.

It is a little hard to make out quite what is going on and why. A cynic might suggest it was all just some sort of public service “brownwash”, designed to impress (say) the Labour Party’s Maori caucus and/or the editors and staff at Stuff. But it must be more than that. They seem sincere, about something or other. Recent minutes of the Bank’s Board meetings released under the OIA show that all these meetings now begin with a “karakia”, a prayer or ritual incantation. It isn’t clear which deities or spirits these incantations are addressed to, or whether atheists, Christian or Muslim Board members get to conscientiously object to addressing the spirits favoured by Messrs Orr and Quigley (the Board chair). But whoever they address, these meetings happen behind closed doors, only rarely given visibility through OIAs, so I guess we have to grant them some element of sincerity, about something or other.

But it seems to be about championing personal ideological agendas, visions of New Zealand perhaps, not policy that this policy agency is responsible for, all done using public funds, public time. And would be no more appropriate if some zealous Catholic-sympathising Governor were touting the importance of “a” Catholic worldview to this public institution, even if – as with the Governor and his “Maori worldview” – it made no difference to anything of substance at all. There is pomp and show, but nothing of substance that makes any discernible difference to how well or badly the Bank and the Governor do the job Parliament has assigned them.

Go through the Bank’s Monetary Policy Statements and the minutes of the MPC meetings. They might be (well, are) fairly poor quality by international standards, but there is nothing distinctively Maori, or reflective of “a Maori worldview” about them. Do the same for the FSRs, or Orr’s aggressive push a few years ago to raise bank capital requirements. Read the recent consultative document on the future monetary policy Remit, and there is nothing. Read – as I did – six months of Board minutes recently released under the OIA, and there is no intersection between issues of policy substance and anything about “a Maori worldview”.

The Bank has lost the taxpayer $8.4 billion so far (mark to market) on its LSAP position.

The Bank has published hardly any serious research in recent years

The Bank and the Minister got together to ban well-qualified people from being external MPC members

Speeches with any depth or authority on things the Bank is responsible for are notable by their absence.

We have the worst inflation outcomes for several decades

And we’ve learned that Orr, Quigley and Robertson got together and appointed to the incoming RB Board – working closely now on Bank matters – someone who is chair of a company that majority owns a significant New Zealand bank.

The Bank has been losing capable staff at an almost incredible rate, and now seems to have very few people with institutional experience and expertise in core policy areas

There is one failure or weakness after another. But there is no sign any of it has to do with Orr’s (non-Maori) passion for “a Maori worldview”; it is simply on him. His choices, his failures (his powers – the MPC is designed for him to dominate, and until 30 June all the other powers of the Bank rest solely with him personally). If the alternative stuff (climate change, alternative worldviews, incantations to tree gods) has any relevance, it is as a symptom of his unseriousness and unfitness for the job – distractions and shiny baubles when there was a day job to do, one that has recently presented the biggest substantive challenges in decades.

Shortly after the speech was delivered, another former Reserve Banker Geof Mortlock, who these days mostly does consultancy on bank regulation issues abroad, wrote to the Minister of Finance and the chairman of the Reserve Bank Board (copied widely) to lament the speech and urge Robertson and Quigley to act.

I agree with most of the thrust of what Geof has to say, and with his permission I have reproduced the full text below.

But asking Robertson and Quigley to sort out Orr is to miss the point that they are his enablers and authorisers. A serious government would not reappoint Orr. A serious Opposition would be hammering the inadequacies of the Governor’s performance and conduct on so many fronts. In unserious public New Zealand, reappointment is no doubt Orr’s for the asking.

Letter from Geof Mortlock to Grant Robertson and Neil Quigley

Dear Mr Quigley, Mr Robertson,

I am writing to you, copied to others, to express deep concern at the increasingly political role that the Reserve Bank governor is performing and the risk this presents to the credibility, professionalism and independence of the Reserve Bank. The most recent example of this is the speech Mr Orr gave to the Central Banking Global Summer Meetings 2022, entitled “Why we embraced Te Ao Maori“, published on 13 June this year.

As the title of the speech suggests, almost its entire focus is on matters Maori, including a potted (and far from accurate) history of the colonial development of New Zealand and its impact on Maori. It places heavy emphasis on Maori culture and language, and the supposed righting of wrongs of the past. In this speech, Orr continues his favourite theme of portraying the Reserve Bank as the Tane Mahuta of the financial landscape. This metaphor has received more public focus from Orr in the last two years or so than have the core functions for which he has responsibility (as can be seen from the few serious speeches he has given on core Reserve Bank functions, in contrast to the frequent commentary he makes on his eccentric and misleading Tane Mahuta metaphor).

For many, the continued prominent references to Tane Mahuta have become a source of considerable embarrassment given that the metaphor is wildly misleading and is of no relevance to the role of the Reserve Bank. For most observers of central bank issues, the metaphor of the Reserve Bank being Tane Mahuta fails completely to explain its role in the economy; rather, it confuses and misrepresents the Reserve Bank’s responsibilities in the economy and financial system. It is merely a politicisation of the Reserve Bank by a governor who, for his own reasons (whatever they might be), wants to use the platform he has to promote his narrative on Maori culture, language and symbolism. 

If one wants to draw on the Tane Mahuta metaphor, I would argue that the Reserve Bank, as the ‘great tree god’ is actually casting far too much shade on the New Zealand financial ‘garden’ and inhibiting its growth and development through poorly designed and costed regulatory interventions (micro and macroprudential), excessive capital ratios on banks (which will contribute to a recession in 2023 in all probability), poorly designed financial crisis management arrangements, and a lack of analytical depth in its supervision role. Its excessive and unjustified asset purchase program is costing the taxpayer billions of wasted dollars and has fueled the fires of inflation. In other words, the great Tane Mahuta of the financial landscape is too often creating more problems than it solves, to the detriment of our financial ‘garden’. Some serious pruning of the tree is needed to resolve this, starting at the very top of the canopy. We might then see more sunlight play upon the ‘financial garden’ below, to the betterment of us all.

There is nothing of substance in Orr’s speech on the core functions of the Reserve Bank, such as monetary policy, promotion of financial stability, supervision of banks and insurers, oversight of the payment system, and management of the currency and foreign exchange reserves. Indeed, these core functions are treated by Orr as merely incidental distractions in this speech; it is all about the narrative he wants to promote on Maori culture, language, the Maori economy, and co-governance (based on a biased and contestable interpretation of the Treaty of Waitangi).

I imagine that the audience at this conference of central bankers would have been perplexed and bemused at this speech. They would have questioned its relevance to the core issues of the conference, such as the current global inflation surge, the threat that rising interest rates pose for highly leveraged countries, corporates and households, the risk of financial instability arising from asset quality deterioration, and the longer term threats to financial stability posed by climate change and fintech. These are all issues on which Orr could have contributed from a New Zealand perspective. They are all key, pressing issues that central banks globally and wider financial audiences are increasingly concerned about. Instead, Mr Orr dances with the forest fairies and devotes his entire speech (as shallow, sadly, as it was in analytical quality) on issues of zero relevance to the key challenges being faced by central banks, financial systems and the real economy in New Zealand and globally.

I have no problem with ministers and other politicians in the relevant portfolios discussing, in a thoughtful and well-researched way, the issues of Maori economic and social welfare, Maori language, and the vexed (and important) issue of co-governance. In particular, the issue of co-governance warrants particular attention, as it has huge implications for all New Zealanders. It needs to be considered in the light of wider constitutional issues and governance structures for public policy. But these issues are not within the mandate of the Reserve Bank. They have nothing to do with the Reserve Bank’s functional responsibilities. Moreover, they are political issues of a contentious nature. They need to be handled with care and by those who have a mandate to address them – i.e. elected politicians and the like. The governor of the central bank has no mandate and no expertise to justify his public commentary on such matters or his attempt at transforming the Reserve Bank into a ‘Maori-fied’ institution.

No previous governor of the Reserve Bank has waded into political waters in the way that Orr has done. Indeed, globally, central bank governors are known for their scrupulous attempts to stay clear of political issues and of matters that lie outside the central bank mandate. They do so for good reason, because central banks need to remain independent, impartial, non-political and focused on their mandate if they are to be professional, effective and credible. Sadly, under Orr’s leadership (if that is what we generously call it), these vital principles have been severely compromised. This is to the detriment of the effectiveness and credibility of the Reserve Bank.

What is needed – now more than ever – is a Reserve Bank that is focused solely on its core functions. It needs to be far more transparent and accountable than it has been to date in relation to a number of key issues, including:

–  why the Reserve Bank embarked on such a large and expensive asset purchase program, and the damage it has arguably done in exacerbating asset price inflation and overall inflationary pressures, and taxpayer costs;

–  why it is not embarking on an unwinding of the asset purchase program in ways that reduce the excessive level of bank exchange settlement account balances, and which might therefore help to reduce inflationary pressures;

–  why the Reserve Bank took so long to initiate the tightening of monetary policy when it was evident from the data and inflation expectations surveys that inflation was well under way in New Zealand;

–  how the Reserve Bank will seek to balance price stability and employment in the short to medium term as we move to a disinflationary cycle of monetary policy, and what this says about the oddly framed monetary policy mandate for the Reserve Bank put in place by Mr Robertson;

–  assessing the extent to which the dramatic (and unjustified) increase in bank capital ratios may exacerbate the risk of a hard landing for the NZ economy in 2023, and why they do not look at realigning bank capital ratios to those prevailing in other comparable countries;

–  assessing the efficacy and costs/benefits of macroprudential policy, with a view to reducing the regulatory distortions that arise from some of these policy instruments (including competitive non-neutrality vis a vis banks versus non-banks, and distorted impacts on residential lending and house prices);

–  strengthening the effectiveness of bank and insurance supervision by more closely aligning supervisory arrangements to the international standard (the Basel Core Principles) and international norms.  The current supervisory capacity in the Reserve Bank falls well short of the standards of supervision in Australia and other comparable countries.

These are just a few of the many issues that require more attention, transparency and accountability than they are receiving. We have a governor who has failed to adequately address these matters, a Reserve Bank Board that has been compliant, overly passive and non-challenging, and a Minister of Finance who appears to be asleep at the wheel when it comes to scrutinising the performance of the Reserve Bank. We also have a Treasury that has been inadequately resourced to monitor and scrutinise the performance of the Reserve Bank or to undertake meaningful assessments of cost/benefit analyses drafted by the Reserve Bank and other government agencies.

It is high time that these fundamental deficiencies in the quality of the governance and management of the Reserve Bank were addressed.  The Board needs to step up and perform the role expected of it in exercising close scrutiny of the Reserve Bank’s performance across all its functions. It needs directors with the intellectual substance, independence and courage to do the job. There needs to be a robust set of performance metrics for the Reserve Bank monitored closely by Treasury. There should be periodic independent performance audits of the Reserve Bank conducted by persons appointed by the Minister of Finance on the recommendation of Treasury. And the Minister of Finance needs to sharpen his attention to all of these matters so as to ensure that New Zealand has a first rate, professional and credible central bank, rather than the C grade one we currently have. I would also urge Opposition parties to increase their scrutiny of the Minister, Reserve Bank Board, and Reserve Bank management in all of these areas. We need to see a much sharper performance by the FEC on all of these matters.

I hope this email helps to draw attention to these important issues. The views expressed in this email are shared by many, many New Zealanders.  They are shared by staff in the central bank, former central bank staff, foreign central bankers (with whom I interact on a regular basis), the financial sector, and financial analysts and commentators.

I urge you, Mr Quigley and Mr Robertson, to take note of the points raised in this email and to act on them.

Regards

Geof Mortlock

International Financial Sector Consultant

Former central banker (New Zealand) and financial sector regulator (Australia)

Consultant to the IMF and World Bank

I write a lot here about issues around the Reserve Bank. Some of those issues are quite obscure or abstract, and I know some readers find some of those posts/arguments a bit of a challenge to grasp.

But yesterday we had as straightforward an example as (I hope) we are ever likely to find.

Inflation is very much in focus at present. Measure of inflation expectations get more attention than usual. There is a variety of measures, both surveys (in New Zealand mostly conducted for the Reserve Bank and by ANZ) and market prices. The Reserve Bank has been surveying households for 27 years, with a fairly consistent (although expanded on a couple of occasions) range of questions. At the Bank there was always a degree of scepticism about the survey – household respondents always seemed (eg) to expect inflation to be quite a lot higher than it actually was – but it was one more piece in the jigsaw, and if one couldn’t put much weight on the absolute responses, changes over time did seem to line with what households might be supposed to be feeling/fearing.

Of the questions, probably the one least hard for households to answer seemed to be the fairly simple one

No numbers needed, just something directional. We have 27 years of data.

The latest results of the survey came out yesterday. The Bank puts out a little write-up and posts the data in a spreadsheet on their website. Yesterday, the write-up didn’t mention this question at all, but the spreadsheet suggested that a net 95.7% of respondents expected inflation to increase over the next 12 months. That seemed like it should be a little troubling, given how high the inflation rate already is.

Except that……it turned out that the Reserve Bank had changed the question, without telling anyone, without marking a series break or anything. The new question is

And that is a totally different question. The old question is about whether inflation will increase or decrease, while the new one is about whether there will be inflation or deflation. At almost any time in the 88 year history of the Bank it would not be newsworthy if 95.7 per cent of people expected there to be inflation. There almost always is.

It isn’t necessarily a silly question in its own right (on rare occasions there are deflation “scares”) but (a) it is a much less useful question most of the time than the question that had been asked and answered for 27 years, and (b) you can’t just present the answers to one questions as much the same thing as the answer to the other. Especially when not telling users of the data.

It was real amateur-hour stuff. Now, in fairness to the Bank, there is a detailed account of the changed questions on the website, but when there was no hint that question had changed there was no motive to go on a detective hunt to find it.

The Bank tells us they have had a 38 per cent increase in the number of senior management positions in the last year, with no increase in the things they are responsible for, and they can’t even get fairly basic things like this right. They’ve destroyed the single most useful question in the survey, and right at the time when every shred of information on attitudes to inflation should be precious. And then seemed barely even to be aware of what they’d done – presenting the answers to two quite different questions as if they were in fact very much the same.

There were a few people yesterday suggesting it was some nefarious plot to reduce access to awkward data at an difficult time. I don’t believe that for a moment – although for wider peace of mind I have lodged an OIA request to confirm (and to find out whether, for example, MPC members even knew of the change). This was a stuff-up pure and simple, which management and senior management (for which the Governor is accountable) should never have allowed to happen. High functioning organisations don’t make stuff-ups like this.

Which is a convenient lead in to an article published this morning.

About five weeks ago Stuff’s business editor asked if I’d like to write a column for them on the Reserve Bank under Adrian Orr. I did so (a few days later) and the final version appeared this morning. I only had 800 words, and there was a lot of ground one could have covered, so much of the story has to be very compressed (and quite a few problem areas left out altogether). You can read the final Stuff version here, or the text I originally wrote is below. Were I writing it now rather than a month ago, I would put more weight on the inflation story – core inflation now having blasted through the top of the target range – but I wanted to distinguish between forecasting mistakes (which are somewhat inevitable, and the best central banks will make them) and things that are much more directly within the control of the Governor, the Board, and the Minister of Finance.

Alarming Decline

By Michael Reddell

Over the four years Adrian Orr has been Reserve Bank Governor, this powerful institution, once highly-regarded internationally but already on the slide under his predecessor, has been spiralling downwards.  The failings have been increasingly evident over the last couple of years.  Here I can touch briefly on only a few of the growing number of concerns.

One can’t criticise the Reserve Bank too much for running monetary policy based on an outlook for inflation and the economy that, even if wrong, was shared by most other forecasters. Until late 2020 the general view of the economic consequences of the Covid disruptions had been quite bleak. Notably, inflation was widely expected to be very low for several years.  The Bank got that wrong, and so inflation (even the core measures) has been a lot higher than expected.  If they were going to err – after 10 years of inflation undershooting the target – it may have been the less-bad mistake to have made.  But they have been slow to reverse themselves – the OCR today is still lower than it was two years ago – and slower to explain.

The Bank is much more culpable for the straightforward lack of preparedness and robust planning.  Orr had been quite open, pre-Covid, that he wasn’t keen on big bond-buying programmes, and if necessary preferred to use negative interest rates.  But when Covid hit it turned out that the Reserve Bank had done nothing to ensure that commercial bank systems could cope with a negative OCR.  They couldn’t.  So instead, as if keen to be seen to be doing something, the Bank lurched into buying more than $50 billion of government bonds.  Buying assets at the top of the market is hugely risky and rarely makes much sense, but the Bank kept on buying well into 2021.  As interest rates rise, bond prices fall. The accumulated losses to the taxpayer are now around $5 billion ($1000 per person, simply gone).  And yet the Bank has never published its background analysis or risk assessment, it offers up no robust evidence that anything of any sustained value was accomplished, and the Governor refuses to even engage on the huge losses.

What of the new Monetary Policy Committee itself?  From the start the Governor and the Minister agreed that anyone with current expertise in monetary policy issues would be excluded from the Committee.  For the minority of outside appointments, a willingness to go along quietly seems to have been more important than expertise or independence of thought.  Meanwhile, staff (Orr and three others who owe their jobs to him) make up a majority of the Committee.  Minutes of the Committee are published but deliberately disclose little of substance, there is no individual accountability, and four of the seven MPC members have not given even a single published speech in the almost three years the Committee has been operating.  Speeches given by the senior managers rarely if ever reach the standard expected in most other advanced countries.  Meanwhile, the in-house research capability which should help underpin policy and communications has been gutted.

And then there is the constant churn of senior managers.  In some cases, people who were first promoted by Orr have since been restructured out by him.  In just the last few months, the departures have been announced – not one of them to another job – of four of the five most senior people in the Reserve Bank’s core policy areas: the Deputy Governor, the chief economist, and the two department heads responsible for financial regulation and bank supervision.   It isn’t a sign of an institution in fine good health. 

And all this has unfolded even as total staff numbers have blown out, supported by the bloated budget the government has given the Governor.   Orr often seems more interested in things he has no legal responsibility for than in the handful of (sometimes dull but) important things Parliament has specifically charged the Bank with.  Perhaps worse, he has a reputation for being thin-skinned: not interested in genuine diversity of views or at all tolerant of dissent, internally or externally.  One might just tolerate that in a commanding figure of proven intellectual depth, judgement, and operational excellence, but Orr has exemplified none of those qualities.

How to sum things up?  Lack of preparedness, lack of rigour and intellectual depth, lack of viewpoint diversity, lack of accountability, lack of transparency, lack of management depth, lack of open engagement, and lack of institutional memory.  It is quite a list.  The Governor is primarily responsible for this dismal record of a degraded institution but it is the Minister of Finance who is responsible for the Governor.

This really is a matter of ministerial responsibility.

Finally, earlier in the week I wrote a post here about expertise and the Monetary Policy Committee in which, among other things, I lamented again the absurd policy adopted three years ago by Adrian Orr, the Bank’s Board, and the Minister of Finance, excluding from consideration for (external) MPC positions anyone with any ongoing systematic interest in macroeconomics or monetary policy. This morning Jenee Tibshraeny of interest.co.nz had a new article focused on that restriction. She has comments from various economists, the only one sort of defending it one who was adviser in Robertson’s office at the time the restriction – one without parallel in any other advanced country central bank – was put on, but had also asked Robertson and the Bank (Orr or Quigley or both?) whether the same restriction would be applied to filling the upcoming vacancies.

It should be incredible, literally unbelievable, if we had not seen so much from Robertson and Orr over recent years careless of the reputation, capability or outcomes of the Bank. As it is, it is just depressingly awful. One hopes – probably idly – that the Opposition political parties might think it an issue worth addressing. After all, not only are qualified people with an ongoing analytical etc interest in monetary policy excluded from the external MPC positions, but the latest appointment to an internal position (by Orr, Quigley and his board, and Robertson in concert) suggests the bias against actual expertise and knowledge might now be being extended to encompass executive roles.

A standard proposition in the literature on delegating public powers to unelected (agents or) agencies in a free and democratic society is that such agencies should operate in a way that leaves no basis for any reasonable person to suspect that those running the agencies are using their platform, and the associated public resources and powers, for any purpose other than the very specific ones Parliament has provided those powers/resources for.   Abuses and departures from this norm need not –  and fortunately in New Zealand rarely do –  involve officeholders seeking to personally enrich themselves or their families.  Here it is more likely to take the form of using the platform/powers provided for specific narrow purposes to advance the personal ideological and policy preferences of top managers/Board in quite unrelated areas.

The fact that those individuals, in abusing their powers, do so believing –  probably quite sincerely –  that they are doing so in some conception of the “public interest” is wholly beside the point.    We have elections, and a wider of contest of ideas in the public square, to advance causes.   The fact that those individuals might be advancing the views of the government of the day is not just beside the point, but getting towards the heart of it.   The whole case – the only real case –  for delegating substantive policymaking powers (as distinct from narrow implementation/operations) rests with the notions that (a) the policy in question is separable from the rest of policy, and (b) those charged with it won’t be pursuing partisan or ideological agendas.  If not, we might as well have elected ministers make decisions (we can kick them out) and keep the agencies quietly in the backroom as advisers and implementers.

Central banks –  or rather central bankers – have long been at risk of falling into this trap, particularly as more of them were granted operational autonomy around monetary policy.   Rightly or wrongly, people tend to pay quite a bit of attention to central banks (probably rightly given how much difference their monetary policy actions can make to economic outcomes over, say, a 1 to 3 year horizon).   When they speak, the idea has been their words on monetary policy should influence expectations and behaviour –  on the presumption that the speaker has no agenda other than the narrow one s/he is charged with.      Central banks are also often supposed to be a repository of expertise and wisdom.   Sadly, even in the narrow specialist areas central banks have formal responsibility for that, too often neither has really been true (that isn’t just a comment about New Zealand).  But central banks do tend to have lots of resources, and provide cheap copy for media (literally, presumably, in the case of op-eds like the Governor’s one that I wrote about earlier this week).

But if your central bankers are using their position to advance personal ideological or partisan agendas –  or are perceived to be doing so, even if that is not their conscious intent – the legitimacy and authority of the institution itself will be damaged.  And if you believe that gubernatorial words can usefully shape expectations, it is likely that the effectiveness of the institution will be eroded as well.   A Labour voter will be less inclined to give serious heed to a Governor suspected of serving National interests or ideological preferences than if they think that person is only interested in doing his/her specific job.  And vice versa if the roles are reversed.    And if a Governor is perceived to be advancing partisan interests, the effectiveness of that Governor when operating under a government of a different political stripe is also likely to be impeded.

Wise people who have been “inside the temple” recognise the issue and risks.   Academic and former Bank of England MPC member Willem Buiter has written about it, as has former Fed vice-chair Alan Blinder.  More recently, former Bank of England Deputy Governor Paul Tucker devoted an entire book to the issues around Unelected Power.   It has also been a theme of mine.

Don Brash was Governor of the Reserve Bank for a long time.  Before coming to the Bank he’d been an unsuccessful National Party candidate.   After he left the Bank he went straight into Parliament as a National Party MP and later was briefly the ACT leader.    His interests always seemed more in ideas/policies than in specific parties, but there wasn’t much doubt about where on the spectrum of policy preferences he stood.   In some quarters, even if he never said anything much on topics outside his remit, that left a residue of mistrust.  I doubt Jim Anderton, or perhaps even Winston Peters, even really saw him as a neutral technocratic figure.  But probably where Don really stepped over the mark was quite late in his time at the Reserve Bank, with his speech to the 2001 Knowledge Wave conference. (I wrote about it here.)  The details don’t matter now, but it saw the unelected Governor use his position to champion policies that bore no relation to matters he was responsible for.  As it happens, in many/most cases they were quite at odds with the views of the government of the day, but it should have been just as unacceptable had he been championing preferences of that particular government.    Senior staff, including me, advised him against it –  and the version delivered was materially less out of line than the draft –  in many cases, including mine, even if we happened to personally agree with the substance of what the Governor was saying.   Fortunately Don welcomed challenge/dissent/debate.

One can debate the strengths and weaknesses and records of the two subsequent Governors. I imagine that both were fairly sympathetic to the governments of the day when they were first appointed, but there was never much ground to suppose that either was using his office to openly advance his personal ideological or political agendas.

With the current Governor, now almost halfway through his five year term,  almost from the first he has consistently used his office to openly champion causes for which he has no responsibility, even as his actual conduct in the things he is responsible for leaves a great deal to be desired.     If the Governor presided over consistently excellent, ahead of the game, monetary policy, if his radical policy initiatives around banking regulation had been well-grounded and authoritative, perhaps the wider abuse of office would be a little less worrying –  a worrying foible perhaps, but  arguably incidental to the success of the stewardship of the things he was responsible for.  It would still be worrying –  as it would if, for example, the Chief Justice or the Police Commissioner were openly using their offices to advance their personal political agendas –  but underlying  excellence tends to buy some grudging respect.

Sadly, that isn’t the Orr Reserve Bank.  It is as if the Governor really isn’t very interested in his core functions or even in building strong core capability beneath him.   Transparency and accountability around core responsibilities also seem to be alien concepts. Openness to debate and challenge –  whether inside or outside the Bank –  on core responsibilities also seem alien to him.  And, on the other hand, is very interested in using his powerful position to champion all sorts of issues dear to his own heart, and that of his ideological allies.  I don’t suppose the Governor necessarily sees himself as championing Labour’s interests or that of the Green Party (the two he would seem to have most in common with) but that is the effect when he weighs in on one topic after another, never in much depth, but consistently advancing those personal agendas in a quite undisciplined way.

There has been example after example of this sort of thing going back to when he first took office in 2018, whether it was views on agriculture, on infrastructure, on climate change, on fiscal policy, on Maori economic development, alleged short-termism or whatever.  It remains notable just how few, and unserious, have been the Governor’s speeches on core responsibilities, and how many his speeches and commentaries on these other issues.  It flows down the organisation.  We had another example yesterday.

The Bank from time to time sends out newsletters to those signed up to its email list.  Yesterday’s one was from one of Orr’s deputy chief executives, the Assistant Governor Simone Robbers (she of the 17 person communications department, among other bits of her domain).

The full text of the email is here.  It was sent out under the heading “Our priorities and key progress on our mahi” (“mahi” apparently means work, but whether in Maori it carries a sense of responsibilities or of self-chosen agendas isn’t clear to me).   Among the Bank’s self-chosen roles appears to be the campaign to change the name of the country, given the repeated use of “Aotearoa” for New Zealand.

The newsletter isn’t long but it is quite telling.

It begins with this bumpf

While a new ‘normal’ is emerging in New Zealand after the initial response to the COVID-19 pandemic, the pandemic continues to have significant and ongoing consequences across the globe. We are actively engaging with our Central Banking colleagues around the world to share policy advice and insights. As explained in this recent op-ed from Governor Adrian Orr, it is clear from our discussions that the COVID-19 health shock is impacting nations in similar ways, however, the economic and policy impacts differ greatly.

I wrote about that content-lite zone on Monday.

Here in Aotearoa, although we have successfully contained the virus, and many parts of the economy are back up and running, households and businesses face uncertain times and potential further disruption as the full economic impacts of the pandemic become evident.

Name of the country aside, I guess it is unexceptional, but also rather empty.  She goes on

We at the Reserve Bank, Te Pūtea Matua, need to keep working together with all of Government and industry, just like we did at the start of the pandemic, to respond to the challenges. We need to be prepared to manage our economic recovery well, while not losing sight of delivering for the long-term interests of all those in Aotearoa.

These “long-term interests” –  whatever they are –  are simply not something the Reserve Bank has responsibility for.  It seems to be cover dreamed up by the Governor to weigh in on anything he chooses.

And that is it on anything even close to the core responsibilities of the Bank.   Inflation –  let alone inflation expectations – doesn’t get a mention at all.  Nor does (un)employment, that the Bank was so keen on talking about last year.  Nor, perhaps to no one’s surprise, does the utter failure to have had the banking system positioned for negative interest rates –  supposed now to be work in progress, in a highly core area, but no mention here whatever.  Instead, we learn what the Bank has been devoting its energies to

Alongside supporting the economy and all New Zealanders by providing liquidity to banks and coordinating monetary and fiscal policy settings, we have also continued to deliver on our commitments including:

• Jointly working with The Treasury to see the new Reserve Bank of New Zealand Bill introduced to Parliament
• Publishing the Statement of Intent (SOI) for 2020-2023 and further embedding our Tāne Mahuta narrative
• Agreeing to a new five-year Funding Agreement to ensure our long term commitments are met
• Progressing our Te Ao Māori strategy through our economic research and proactive outreach to regulated entities, Government and Māori partners
• Working closely with our fellow Council of Financial Regulators (CoFR) members to manage and co-ordinate regulatory work to enable the financial sector to focus on their customers.

During this time, some of our initiatives have received sharper focus as we look to respond to COVID-19 challenges. For example, the financial inclusion issues that are being faced by everyday New Zealanders. We congratulate the banking sector for their leadership in recently becoming the first living wage accredited industry in New Zealand.  It is also a good time to deepen our collective understanding of climate change risk in the financial sector, and ensuring we are all taking a long term and sustainable approach to economic recovery and future resilience.

We are using this period to consider what is ahead and what steps we need to take so we can live up to our vision of being ‘A Great Team and Best Central Bank’ and deliver as kaitiaki (caretaker) against the commitments we made in our SOI.

Actually, the Bank doesn’t “coordinate monetary and fiscal settings”: the Minister of Finance sets the Bank a target, and the government sets fiscal policy, and then the Bank (MPC) is just charged with getting on and doing its monetary policy job, given all of that.

But even set that to one side, what do we see prioritised?    Well, there is the tree god nonsense that the Governor seems so fond of.   Perhaps it does little harm –  although as I’ve unpicked it in the past it is often actively misleading –  but right up there at number two on the list?    Then, of course, we get the Bank’s Maori strategy –  something that is not clear is necessary at all (in a wholesale-focused organisation) –  or which has generated anything of substance (and no research, despite the claims here) in support of the Bank’s actual statutory responsibilities.  But it advances the Governor’s personal whims and preferences I guess.

Then we move off the bullet point list and on to the next paragraph, and even more highly questionable stuff.  There is that line about “financial inclusion” which, whatever it means, clearly has nothing whatever to do with the Bank’s twin responsibilities for financial stability and macroeconomic stabilisation.   There might be some worthy issues there, at least on some reckonings, but they are nothing to do with the Bank.

Then –  and this was the one that caught my eye –  there is the weird reference to the banking sector and the so-called “living wage”.    I’m sure the Green Party must love that settlement, and whatever deals banks want to sign up to for their staff is really their affair, but what has it to do with a prudential regulator, the Reserve Bank –  which is not, repeat, some general regulator of all banking sector activities?    I suppose we should be grateful not to see the Bank praising the Kiwibank decision to refuse banking facilities to lawful and creditworthy businesses doing business that the Governor profoundly disapproves of.

But perhaps that is encompassed by the next sentence.

“It is also a good time to deepen our collective understanding of climate change risk in the financial sector”

Not clear why it is a “good time” (one might have supposed a higher priority now might be, for example, understanding the risks to the financial sector from a prolonged downturn and limited monetary policy response, or to have understood better the issues and options around macro-stabilisation and the (current) effective lower bound on nominal interest rates).  But, for what it is worth, I think we can pretty easily conclude that the risks of climate change to the New Zealand financial sector are vanishingly small.  But acknowledging that might make the Governor’s position – endlessly weighing in on these personal causes –  seem more obviously inappropriate.

And who knows what lurks beneath that

ensuring we are all taking a long term and sustainable approach to economic recovery and future resilience

It isn’t even clear whether the “we” is supposed to refer to the Reserve Bank or the rest of us.  What is clear is that none of it has anything much to do with the monetary policy responsibilities of the Bank –  the bits actually to be able recovery.  Full employment, conditioned on price stability, should be what matters, but none of that gets a mention at all.

And then Robbers ends with this

We are using this period to consider what is ahead and what steps we need to take so we can live up to our vision of being ‘A Great Team and Best Central Bank’ and deliver as kaitiaki (caretaker) against the commitments we made in our SOI.

As I noted earlier in the week there was a speech on this topic a month ago.  It was startlingly empty, devoid of any real sense of (a) why this goal made sense, (b) how the Bank, and those it works for, might know if it was achieving the goal, or (c) what steps management was taking to deliver on the goal.  When he delivered the speech, I noted down a strange comment from the Governor about how it is “therapeutic” to be able to think about these issues.  Even at the time it struck me as a luxury most private businesses wouldn’t have, and one one might not expect a central bank grappling with a deep economic downturn, falling inflation expectations, rising unemployment etc  to have either, at least if it were doing its job.  Then again, the Bank has a big budget and no real accountability so I guess the Governor can simply pursue his whims.

And that is about it.

In a way none of it was that surprising.  This is the Reserve Bank that Orr has been creating in his own image: one that simply isn’t doing its job well, doesn’t have its eye on the ball, shows no sign of thinking deeply about the core challenges it should be addressing….all while pursuing the personal ideological agendas of the Governor (and his handpicked senior management –  most probably you don’t get or keep a job on the top team –  or perhaps further down the organisation either- unless you are all-in with his alternative, non-statutory agenda).  We deserve a lot better, the economy needs more, but there is no sign that the Bank’s Board –  paid to hold the Governor to account –  or the Minister of Finance care.  It is just another marker on the journey of the degrading of the capability of our economic institutions, and of the legitimacy and authority of our autonomous central bank.

There was one final thing I noticed deep down the email (which had various links to other bits and pieces).  As I’ve noted regularly, the new Monetary Policy Committee has now been in place since 1 April last year.  In that entire time, including through some of the bigger macro challenges in modern times, we’ve heard not a word from any of the three external members of the Committee, the ones carefully selected to not be awkward for the Governor, to meet the government’s gender quota, and to exclude –  consciously and deliberately – anyone with current monetary policy or macro expertise.  But now we have.  There is a couple of minute Youtube clip where we see and hear from the externals.   Not, of course, that they say anything of substance, anything about actual monetary policy, inflation, employment or anything.  But they wax lyrical about a wonderful collegial process, and what a learning opportunity has been –  and about how they don’t pay much attention to things for six weeks and then get together, with no undue influence from anyone.  No doubt they are all deeply sincere, but it did have a bit of sense of a hostage video, produced to show that the Committee really exists. It should assuage no concerns at all about the structure, the people, the lack of transparency, and the lack of accountability.