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BusinessNZ CEO Kirk Hope criticises the RBNZ for being 'pretty active' and surprising business, RBNZ Governor Adrian Orr hits back saying the RBNZ is 'forward-looking and transparent'

BusinessNZ CEO Kirk Hope criticises the RBNZ for being 'pretty active' and surprising business, RBNZ Governor Adrian Orr hits back saying the RBNZ is 'forward-looking and transparent'

In an unusual move the Reserve Bank has hit back at criticism from lobby group BusinessNZ via a press release.

In an article published on the Stuff website BusinessNZ CEO Kirk Hope says the Reserve Bank has been "pretty active" over the past year in monetary policy, its prudential policy through proposed increases to bank capital requirements, and has also expressed views on fiscal policy. Hope also points to last week's surprise 50 basis points Official Cash Rate (OCR) cut and talk of negative interest rates and quantitative easing.

"In the past we've appreciated the Reserve Bank's quest for stable low inflation and its lack of surprises," Hope writes.

He concludes; "Business confidence would be better supported if the Reserve Bank focused on a conservative, principles-based, no-surprises approach to monetary policy."

However in comments attributed to its Governor Adrian Orr, the Reserve Bank says it's operationally independent, its mandate and goals are clear, and its decision making is transparent.

"Given the long and variable lags between setting the Official Cash Rate and the impact on inflation and employment outcomes, our decision making is deliberately forward looking. We cannot, and do not, set the OCR based on current or historical inflation and employment outcomes. We scan the horizon and chart for the journey. We look ahead - not behind," says Orr.

"A read of our public Monetary Policy Statement would clarify this issue for any interested party. We are lauded internationally for our transparency in publishing a forward-looking interest rate path to ensure people can understand our actions. Global and domestic low inflation expectations sit as a key reason for lower global and domestic official interest rates."

"Our proposals to increase bank capital requirements are designed to improve the resilience of our banking system to benefit all New Zealanders. Our proposals are being discussed in a very transparent and open manner, and we continue to engage with an open mind and have shared submissions on our website," Orr says.

See more on BusinessNZ and the Reserve Bank's bank capital proposals here.

Orr 'could run for Parliament instead'

Oliver Hartwich, executive director of think tank the NZ Initiative, has also criticised Orr. Hartwich says Orr, of late, has "expressed clear views" on fiscal policy as well as monetary policy, urging the Government to spend more money, especially on infrastructure. Hartwich argues it's damaging to the Reserve Bank's reputation for financial markets to even wonder whether Orr might overstep his role.

It is good practice for governments to respect the independence of their central banks, and central banks should stay out of the government’s business, Hartwich suggests.

"For this reason, the remit of the RBNZ needs urgent clarification that the Monetary Policy Committee will only pursue monetary goals, even under conditions of quantitative easing. If Orr still wants to meddle in infrastructure policy, he could run for Parliament instead," says Hartwich.

As with BusinessNZ, the NZ Initiative's members include New Zealand's big four banks.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


The timing of this article couldn't have been better. BusinessNZ just released its Performance of Manufacturing Index a few minutes ago.

At a reading of 48.2, the senior economist reports - For the first time in 82 months, New Zealand’s Performance of Manufacturing Index (PMI) has dipped into contractionary territory.

Bad PMI, A$/NZ$ to 1.10.


Exactly, as the RBNZ claims :

"...Global and domestic low inflation expectations sit as a key reason for lower global and domestic official interest rates."

Which means deflation - banks decline to lend in this environment, except to the lowest risk borrowers, thus interest rates fall to reflect this conservative lending regime and central banks end up rubber stamping banks' corporate risk preferences, after the fact.

I don't don't subscribe to the deflation story, it's not going to happen.

House prices are deflating right now.

But is that deflation?

Nonetheless, the NZ Government inflation indexed 2.0%, 20/09/25 note is currently yielding around -0.10%

You do realise that negative real yields isn’t deflation right? In fact it generally means higher inflation.

It means investors are seeking the safety of sovereign debt as a liquidity hedge at a cost greater than the perceived future stream of cashflows - why would they do this unless the future was uncertain and they expect the cash returns will accrue greater purchasing power than today up to redemption or a greater fool will buy them out at an even higher price before that date?

What point are you trying to make? You are posting negative ILB prices as if that's evidence of deflation - it's not, it's actually telling you investors are preparing for higher inflation relative to nominal interest rates. If you by an ILB, you are receiving inflation linked coupons and capital accretion, a -ve price means investors are bidding the bonds in expectation of higher inflation. If you thought deflation was coming you would short this bond.

No point at all, other than at a current price of $122.07 NZDM's inflation indexed note formula, given the current PFactor and Kt variables, for the 2.0%, 20/09/25 linker offers up a negative yield - which surely means the current sale price is greater in value than the calculated future stream of NPV cashflows. - who knows what the future holds for the input variables?

Those variables are just the CPI indexations ie inflation. ILB's are a little counter-intuitive, in this case investors are willing to pay a premium to receive inflation linked coupons. They believe CPI is going to be higher than the fixed rate bond over the duration. Think of it this way, very simply if I bought this ILB and inflation went to 20%, I will receive 19.90%. So I am hedged against higher inflation. If I'd bought the nominal at 1% I still receive 1%.

In case you haven't noticed, we have been running our economy at a 90%+ capacity utilization for the better part of a decade. In fact, since 2008 to 2019, this metric has averaged 91.5%, reaching an all-time high of 93.7% Q2 2019. This also explains why inflation rate on non-tradeable items in NZ runs at elevated levels compared to tradeables.
It is unlikely that a global recession will create too much spare capacity to bring about deflation, except in non-tradeable items.

Looks like no one is going to come off looking good from this developing mess.
Banks, Businesses, RBNZ, the Government they are all acting on different tangents..
Any one cares about the common man/woman ?

Quite right.
Anyone who buys/invests in anything at this juncture isn't reading ' the signs' well.
Maybe it's me that got them wrong. I hope so.
Because if what I see coming, comes, common man/woman is in for a hell of a time.
'Buy at your peril' at the moment - anything - because the cost of debt is going to plummet to try to keep the sinking ship afloat. And regardless of the heroic efforts of Captain Orr - it's too late....

How much Orr sees coming, is an interesting question. Certainly the Climate Change Advisory role they're creating suggests they haven't got a handle on where we are Limits-to-Growth wise. They're still spelling sustainability with a small s, and linking it as an afterthought to CC. So they've a ways to go.

But the growth-based model is becoming untenable - and I've long suspected that includes profit, along with interest. So both parties are in trouble, conceptually. Buckle up, they staved it off for ten years, but it's coming.

Surely, stability in interest rates and exchange rates is more important than stability in inflation when making investment decisions? While I applaud Orr's decision to be nimble and frontrun the policy of the major powers, I am rather suspicious of his reasoning; it's just too fashionable and approval seeking. Of course, he may just be playing the game at a higher level and issueing smoke signals as required.


There is only one answer to soften this impending meltdown on hard working Kiwis, and that is remove Foreign Banks rorting $5 Billion p.a. profit from the NZ economy.

Money we don't have.

10 years of Foreign Bank profits is equiovalent to 100 years of Fonterra profits. (Our biggest Company is 1/10th the size of just the Foreign Banks profit).

This is unsustainable and has to end now, after 30 years of monopoly and cartel Banking.

No country in the world would allow a Foreign Bank to manage its Government Banking, yet we do.

NZ, RBNZ, Treasury and our Politicians: The laughing stock of the Oz Banks. $5 Billion a year, its just stupid economics.

Good point!
The ANZ group made a fourth of its earnings last year from its NZ operations. That describes how big a cash cow NZ is for the big-4 banks.

If public sector enterprises switch to Kiwibank as their preferred banker and its shareholders (ACC and NZ Super) fund its growth to improve the competition landscape in NZ, things could change dramatically.

Leonardus as you remember we SOLD the banks back in the day. Now they are in foreign hands they are a "business" not your "best buddy" so they are milking us harder than Fonterra is milking cows. The situation will not change unless we buy them back and like that is ever going to happen. As I have said before, its a wonder the banks even listen to what the OCR is doing if the controls are all offshore.

thanks, but you're not addressing the problem at all.

We can reduce the $5 Billion a year profit being milked easy

Because we didn't SELL the Government Banking contract to a Foreign Bank, its just a contract, so take it back. Quite simple really.
Imagine the clipping the ticket going on by said Foreign Bank that could be in the hands of a NZ owned clearing House bank, like we used to have. Imagine the health care we could buy for NZ children if this profit stayed in NZ instead of going to OZ.

Second, prevent Foreign Banks removing dividends if the NZ Current Account is in deficit.

i.e. end the ability of the Foreign Banks to use the NZ economy as a credit card, where NZ picks up the overspend by way of selling more assets to Foreigners, or forces NZ to borrow more money from Foreign Banks, and thus pays more interest at higher margins offshore losing more money from the economy in the process.

We are forced into borrowing or encouraging Foreign Investment due to the brainless circle of selling assets, losing the profit, borrowing the lost profit back as a loan, paying more and more interest and hence profit on loan funding that we used to own in the first place had we not sold these assets to Foreigners.

Foreign Banks are expatriating Dividends 10 * faster than Fonterra can get the milk processed and exported, while working at about a speed of 10 * less than our hardworking farmers, with 10 * less risk.

what a rort.

A really good summary of the situation. Same with our housing being sold to foreign owners after we enriched them by buying their junk. Heading for a perfect storm with a lightweight captain who has never been to sea before and officers who are similarly incompetent. Hold on tight.

Yes Leonard, and imagine if the locally owned banks ever managed to have enough capital to lend even 10% of what the Aussie banks invest here ($28bln) to get their $5bln return....imagine if the local banks can ever manage their businesses well enough that the next severe banking crisis doesn't bankrupt another one and give another one to a more viable oversea bank...imagine if the likes of Kiwibank had anywhere neat the capabilities to handle the Govt banking contract that they didn't even bother to tender for...imagine what would happen to credit and the economy if "we were to prevent foreign banks removing dividends"...imagine if the earth was flat

we did very well at it pre Neoliberalism using the NZ system.,

and I see the OZ banks are stacking their CEO's and Boards with NZers, one even an ex recent Prime Minister,

We obvoiusly still have the ability to work out this most difficult business of banking.

Why then sink NZ by giving Foreigners our Banking Industry. We've never had losses any where near the profits that are being removed, so no cause for panic.

Just re own the business, like any commercial business figures out how to do. Very simple.

So Mr Kirk (ex Banker's Association? ) would prefer the RBNZ to do very little?

I'm with Hope on this one. I do not believe that the RNZ is being "transparent" as Orr states. Nor can Orr claim that the RBNZ is independent with a political appointee. Next he will claim that under his watch the RBNZ is the most transparent RBNZ that New Zealand has ever seen. Where have I heard that one before?

I dont think the RBNZ has ever had a governor who has so much favouritism for equities. I know he did a great job picking stocks for ACC, but does a reserve bank governor need to be more balanced with conservative savings? I see the currency markets are so far ignoring his pegging of the AU OCR, exchange rate still in the mid nineties, they are not buying his line.

He worked for NZSuper... not ACC... and he didn't pick stocks.

He is a tremendously clever and personable guy... my fear is here though he has taken on a social crusading role that he was not employed to do.

This is no "social crusading role" its should economic principles unlike neo-liberalism which after 30 years is a clear failure.

Foreign owned banks ship more money back to Aus than they pay in wages in NZ. Last year ANZ owned Bonus Bonds paid out $40million in prizes, and their Aussie head office charged a $60million consultancy fee to them. Brilliant if you can swing it. All we have to do is regulate and legislate them back to Australia, and let NZ banking be done by NZ banks.

BizNZ what is that anyway? A collection of underperforming zombie firms that could be bought and sold with the loose change found down the back of any hedgefund managers sofa. Hey Kirk, when your constituents prove to me they actually know what they are doing by putting solid financial performances together by investing in productivity instead of stripping costs out of their workforce or using cheap immigrant labour then I'll listen to what they've got to say. Till then, know this. Adrian Orr will be proven to be the most important, positive step in the economic development of this Country ever. One thing is for sure we don't want the fate of the economy left in the hands of a group of businesses that literally cannot wipe their asses or keep their balance sheets solid.

Totally agree...

"urging the Government to spend more money, especially on infrastructure." and this where done prudently can produce a positive effect with a multiplier (spend $1 get $1.60 benefit) and if its a one off spend should have no lasting inflation effect. Seems some media is still listening to those spouting the far right wingers "austerity works" mantra. Mind boggling really.

Remember its the objective of the right to convince us that the state is a broken, impoverished model and to ultimately seize every asset conveniently capitalized by the state and then impose what ever charges they see fit for access to it. The last thing they want anyone to hear is that the state is actually a multiplier of wealth. In many instances the state is more succesful at establishing new industries than the private sector, especially with the high degree of inept corporate leadership in this country. Its going to take sometime due to the deliberate disabling of the public beauracracy under National which in part caused the failure of kiwibuild mk1 but we will see in time the rise of what is going to be ministry of works mk2. It will develop and administer big projects that will really help this fragmented little country get back on jts feet again. The only threat being the voting public tempted into voting for a National party leader with a smiley face, a neo libralised agenda and a dubious track record running the government owned airline....'cause thats ample qualification for being primeminister.

Orr works for New Zealand and certainly knows his mission even if he does not know the exact likely outcomes.
Hope works for a group of self serving and greedy group of operators who fancy their own importance.