A war of words has erupted around the Reserve Bank, with National calling for a monetary policy inquiry during the pandemic period and Treasury Secretary Grant Robertson hitting back by calling Christopher Luxon a “captain after the fact”.
The fight as Parliament resumed came courtesy of an essay written by Graeme Wheeler, predecessor of Reserve Bank Governor Adrian Orr, and New Zealand Initiative economist Bruce Wilkinson.
In the essay – highly unusual for an immediate former New Zealand central banker – Wheeler lashed out at his successors for pursuing ultra-loose monetary policy and accused central bankers around the world of being far too confident in their ability to control inflation.
On the back of the report, the National Party has called for an independent investigation into the Reserve Bank’s monetary policy response from March 2020 through the end of 2021 “to better understand the ongoing impact of key decisions, the duration of stimulus and possible lessons learned for the future.”
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National hopes it will open a new front in its fight over the cost of living with the government.
The party said while it fully supports the Reserve Bank’s independence, it expects an “independent” review to be launched before Orr is reappointed or a new governor appointed.
Robertson dismissed the proposal as a political stunt, saying reviews were already complete and ongoing.
“My answer to that is that ‘Captain Hindsight’ Mr Luxon needs to remember what he and his party said at that time. Most New Zealanders supported the reasons why we had to intervene in both fiscal and monetary terms.
“More broadly, it is the responsibility of the Reserve Bank and its Board to review the Bank’s performance. I will not initiate any further investigation.”
Significantly, the National Party has linked its criticism of Orr to his reappointment, arguing that it would be uncomfortable recommending Orr without prior investigation. New rules introduced by Robertson require the opposition to be consulted on the appointment of a new RBNZ governor.
“Our point is simply that it’s not enough for the Reserve Bank to assess its own homework, there should be an independent assessment of decision-making,” National finance spokesman Nicola Willis said, citing the bank’s Review of the mandate of monetary policy proceedings, currently underway.
ACT leader David Seymour also joined the fight but went further than National by saying his party has no faith in Orr.
“If you read the Monetary Policy Committee mandate and compare that to David Caygill’s first policy target agreement in 1990. It used to be ‘Bring inflation to that level by then or review your position’. The current monetary policy mandate has no concrete, measurable goals.”
Both Willis and Seymour agreed that the RBNZ’s actions would also be shared by many other central bankers around the world, but Willis said that fact “shouldn’t mean that New Zealand doesn’t strive to be the best”.
“Central bankers have failed around the world. But saying that isn’t good enough to let our central bank off the hook just because others screwed it up too,” Seymour said.
The essay, co-authored by Wheeler, who was not known for fronting the media or being very comfortable with criticism during his tenure as governor from 2012 to 2017, was aimed not primarily at the RBNZ but at the general public central banks.
Every living former Reserve Bank governor, with the exception of Alan Bollard, has now criticized Orr in some form. When contacted by ThingsBollard said he generally does not comment on the current conduct of monetary policy.
In Australia, where inflation is at 5.1% but rose 2.1% in the most recent quarter, newly elected Labor Treasurer Jim Chalmers also launched a “comprehensive review” of the Reserve Bank of Australia’s operations last week .
The review will examine the Reserve Bank of Australia’s “objectives, mandate, the interaction between monetary, fiscal and macroprudential policies, its governance, culture, operations and more,” Chalmers said.
The government announced a Review of RBNZ that started in 2017 and has led to a restructuring of banks’ governance in recent years, including their monetary policy committee and board of directors.
Orr did not respond to requests for comment.