Finance Minister Grant Robertson’s appointments to the Reserve Bank’s (RBNZ) new Monetary Policy Committee (MPC) aren’t causing waves among economic observers.
Robertson on Thursday announced academics Bob Buckle and Caroline Saunders, and former unionist Peter Harris will join four RBNZ representatives on the new committee tasked with setting the Official Cash Rate (OCR).
While the Governor was previously solely responsible for setting the OCR, the first of two revisions of the Reserve Bank Act sees this responsibility shared by a five to seven-member committee that has to publish minutes from its meetings.
Governors have traditionally chosen to consult with those from within and outside of the RBNZ on monetary policy decisions, but the requirement to do so under the law makes the decision-making process more transparent and aligns the RBNZ with central banks around the world.
While the change is technically and legally a major one, none of the economic observers interest.co.nz spoke to believe the appointments will at this stage significantly change the way they formulate their OCR outlooks.
However, with the MPC becoming operative on Monday, the feeling is it’s still early days.
Externals no pushovers
Berl executive director and chief economist Ganesh Nana is among those who question whether it’s a good thing for the RBNZ to maintain a level of institutional control over the MPC.
The fear is the requirement for the majority of the MPC to be made up of RBNZ staff would result in them banding together and calling the shots.
However Westpac chief economist Dominick Stephens believes the governance experience the three “externals” have won’t see them cowering to the “internals”.
He particularly notes the experience Buckle and Saunders have in their fields.
As an economics professor at Victoria University, and former pro vice-chancellor and dean of the business school, principal Treasury adviser, chair of the APEC Economics Committee, and chair of the Government’s 2009-10 Tax Working Group, Stephens says Buckle is one of the “lead” macroeconomists in the country.
He recognises Saunders’ expertise in agriculture, as a professor of international trade and environment, who also heads up the Agribusiness and Economics Research Unit at Lincoln University and is a Landcare Research director and Biosecurity Ministerial Advisory Committee member.
Stephens doesn’t know Harris as well, but understands he’s fairly “forthright”.
Harris is an economic consultant and former long-time Council of Trade Union economist, Electricity Commission member, management head of the Public Service Association, and adviser to Michael Cullen when he was Finance Minister under the Labour-led Government.
Like Stephens, ANZ chief economist Sharon Zollner notes the breadth of experience across the three members, and particularly highlights Buckle’s monetary policy expertise.
She admits the committee does add a new dimension and bring some uncertainty.
Does it bring “inertia”? Zollner says it’s hard to know.
She says the market will have to learn to read the MPC and understand the messaging in its statements and minutes.
But for now, it’s business as usual, with the focus remaining on the economic data underpinning any decision-making.
Zollner says it’ll be difficult for the MPC to take a hawkish tone when it makes its first OCR decision on May 8, given Governor Adrian Orr’s dovishness, announcing his easing bias on Wednesday.
Small country, large conflicts of interest
Both Zollner and former RBNZ Governor Don Brash maintain the challenge on an ongoing basis will be finding members for the MPC who have the expertise and time, but don’t pose conflicts of interest.
Zollner notes this conflict issue would make recruiting a member with more commercial experience difficult too.
While the lack of commercial experience between the three appointments may stand out to some, it isn’t an issue for BusinessNZ CEO Kirk Hope.
He believes it’s important for the MPC to focus on the RBNZ’s monetary policy objectives from the viewpoint of the economy as a whole, rather than as sector representatives.
Likewise, Berl’s Nana flags problems appointing members based on the sectors they represent. If you have a business person, then do you need a wellbeing expert too, for example?
In a similar vein, Kiwibank senior economist Jeremy Couchman recognises the appointments are “quite academic heavy,” but says the job requires a unique set of skills.
Asked how the market might react differently to decisions made by a committee, which could include dissenting views, versus an individual, Couchman says there could be a big reaction if any changes in members’ positions (detailed in meeting minutes) aren’t conveyed in the statements they release.
Yet he says international experience suggests this isn’t the norm.
On a more fundamental level, BusinessNZ’s Hope believes there are risks moving to a committee structure where accountabilities are “less clear” and the RBNZ’s “goal” has widened. Under the revised law, the RBNZ has an employment, as well as an inflation target.
Brash – a vocal opponent of the committee structure – says he has softened his stance, recognising it’s the international norm.
He declined to comment on the appointment of Buckle, Saunders and Harris, as did National’s Finance Spokesperson Amy Adams.
Cameron Bagrie of Bagrie Economics says on a high level the committee structure will result in more transparency.
However he’s looking forward to the RBNZ on Friday providing more information around the nuts and bolts of how the MPC will work.
Interest.co.nz is attending a speech and Q&A session at which Orr is expected to provide these details. Coverage will follow.
Full MPC member bios
Professor Caroline Saunders holds a PhD in Agricultural Economics. She is currently Professor of International Trade and the Environment and Director, Agribusiness and Economics Research Unit, at Lincoln University. Professor Saunders is a Director on the board of Landcare Research NZ, and sits on the Biosecurity Ministerial Advisory Committee. She is a former director of AgriQuality and Council member for the Royal Society of New Zealand. Professor Saunders has been appointed for a four year term.
Professor Bob Buckle is Professor Emeritus at Victoria University of Wellington. He was Pro Vice-Chancellor and Dean of the Victoria Business School from 2008 to 2017; Principal Adviser at NZ Treasury from 2000 to 2008, Chair of the Economic Committee of APEC, Chair of the Government’s 2009-10 Tax Working Group, and Chair of the External Panel for Treasury’s Long-Term Fiscal Statement in 2012. He chairs review teams for European Foundation for Management Development (EFMD) and is an ambassador for Victoria Business School’s ‘Great Futures’ scholarships. Professor Buckle has been appointed for a three year term.
Peter Harris is an economist with extensive experience in the trade union movement, including a decade as CTU Economist. He is currently an economic consultant. He has been a member of the Electricity Commission and an associate member of the Commerce Commission. He was Economic Advisor to the Minister of Finance from 1999 to 2002. He was a management head of the Public Service Association, and a Board Member of PSIS Ltd and the NZ Universities Academic Audit Board. He led the Government’s Savings Product Working Group in 2004. He is also a member of the Wellington City Council Finance Audit and Risk Committee. Mr Harris has been appointed for a three year term.
Adrian Orr is the Governor of the Reserve Bank. Before re-joining the Bank as Governor, Mr Orr held the positon of Chief Executive Officer at the Guardians of the New Zealand Superannuation Fund. Prior to this he was the Reserve Bank’s Deputy Governor and Head of Financial Stability, and has held Chief Economist roles for Westpac Banking Corporation and National Bank, as well as economist and analyst roles for The Treasury and the Organisation for Economic Cooperation and Development.
Geoff Bascand is the Deputy Governor and General Manager of Financial Stability at the Reserve Bank. Before joining the Bank, Geoff was the Government Statistician and Chief Executive of Statistics New Zealand. He had previously worked in senior management roles in the Department of Labour and the New Zealand Treasury, and was a staff economist at the International Monetary Fund.
Christian Hawkesby is Assistant Governor and General Manager of Economics, Financial Markets and Banking at the Reserve Bank. He was previously a senior member of the Harbour Asset Management team. Mr Hawkesby worked as Head of Market Intelligence for the Bank of England during the global financial crisis. Mr Hawkesby has been appointed for a five year term.
Yuong Ha is Manager for International and Markets Analysis at the Reserve Bank. His career has spanned several economics and financial markets roles at the Reserve Bank, as well as secondments to the IMF and Statistics NZ. Mr. Ha has been appointed for a one year term to ensure that the MPC is fully resourced whilst the role of Chief Economist at the Reserve Bank is vacant.