Opposition Leader Christopher Luxon has thrown any reappointment of Reserve Bank Governor Adrian Orr for a second five-year term into doubt, saying he wanted a full independent review of the Reserve Bank's performance during 2020 and 2021 before Orr was reappointed a few months before next year's election.
Luxon would not say if he would call on Finance Minister Grant Robertson not to reappoint Orr, given the five-year term would begin just months before a potential change of Government, but repeatedly said he wanted an independent review of the 'wave of cash' produced by the Reserve Bank first.
Luxon's predecessor (bar one) Simon Bridges said last year he didn't want Orr reappointed just months before the so-called caretaker period when sitting governments usually don't appoint people to statutory and/or independent roles that a new government would inherit.
However Robertson has rejected the call for an inquiry, saying one had only just been completed (before Covid) and Luxon's criticisms showed him to be 'Captain Hindsight.'
Luxon called for a public inquiry into "the extent to which a tidal wave of cash poured on the New Zealand economy caused the current cost of living crisis," in a statement on Tuesday.
“The Reserve Bank and the Government took unprecedented steps in 2020 and 2021 to pump money into the financial system. The massive and ongoing monetary and fiscal response unleashed a tidal wave of cash into New Zealand’s economy," Luxon said.
“The Government should initiate an independent public inquiry into the Reserve Bank’s monetary policy response from March 2020 until late 2021, to better understand the lasting impact of key decisions, the length of stimulus and any lessons that can be learned for the future," he said.
“It’s not credible for the Reserve Bank, nor the Government’s own agencies, to lead a review. National respects the independence of the Reserve Bank and seeks to uphold that independence. That must not stop us evaluating the performance of the Bank on behalf of the New Zealanders we serve."
Luxon referred to criticism of the Reserve Bank and other central banks in a joint report by former Reserve Bank Governor Graeme Wheeler and NZ Initiative fellow Bryce Wilkinson.
“New Zealanders deserve an independent appraisal of the decision-making during this extraordinary time. Households struggling through a cost of living crisis need assurance that economic decision makers are doing everything possible to prevent a repeat. Quite simply, could the worst of today’s inflation hangover have been avoided and if so, how can we stop it happening again?"
Luxon called for the terms of reference of such an inquiry to be drafted by parties across Parliament.
His call followed the announcement last week of an independent review of the Reserve Bank of Australia by the new Labor Government there. The Reserve Bank is conducting its own five-year review of its monetary policy remit, which it is required to do under new legislation. A review of the Reserve Bank was conducted before the passing of new legislation in 2018, which formalised the addition of a requirement to support full employment alongside targeting inflation around 2% and created a formal Monetary Policy Committee for making monetary policy decisions.
“A key question will be the roles the Finance Minister and the Treasury took in both facilitating the Reserve Bank response and co-ordinating with it. The inquiry should be time-bound, to ensure public scrutiny of its outcomes prior to the appointment process for the Reserve Bank Governor, which is required ahead of the end of Adrian Orr’s current term in March next year," Luxon said.
'Money printing and the effect on house prices'
Later, speaking at a news conference, Luxon declined to answer directly if he would protest to Robertston to stop the reappointment of Orr for a second term from March 27, 2023, if Robertson did not order an independent inquiry. On current political opinion polling, Luxon is a good chance to win government in an election late next year.
He passed the question over to Finance Spokeswoman Nicola Willis.
"We think the government has nothing to fear from an independent assessment of monetary policy decisions over the past two years," Willis said.
Asked about possible terms of reference, she said:
"Were interest rates kept low for too long? Was the programme of Large Scale Asset Purchases (LSAP) and the Funding for Lending programme, together with the low interest rates, were they over-stimulatory to the economy, when combined with unprecedented fiscal stimulus from Grant Robertson?
"What role did Grant Robertson play in signing off, for example, that LSAP programme, and was there proper coordination between the Reserve Bank and the government, both of whom were pumping the money hose at the same time, and New Zealanders now bearing the consequences of."
Willis said any inquiry should also look at the impact on house prices.
"New Zealand has to take lessons from the past two years, Kiwis are really hurting right now. Whether it's the price of groceries, childcare fees, petrol wages aren't keeping up, people are being crushed by inflation. Let's have a look at whether we got this right," she said.
Robertson still has confidence in Orr
Asked about the criticism by Wheeler and whether he would reappoint Orr, Robertson said he was still working with the board and could not give specifics, "but I will continue to say what I've said for some time, which is I have confidence in the Governor."
"Captain Hindsight, Mr Luxon, needs to remember what he and his party said in that period of time. Most New Zealanders supported the reasons that we had to intervene both at a fiscal and monetary policy," Robertson said.
"I don't think Mr. Luxon has any moral high ground on this. There will inevitably be space for us to look at all manner and aspects of the response. And I'm sure the Reserve Bank t will do its bit in there, but the point I'm making here is that I vividly remember calls from National Party to spend more money than we did supporting businesses," he said.
Asked if New Zealand should do what Labor Treasurer Jim Chalmers just announced (an independent review), Robertson said: "I just did that, and I don't think I'll put the Reserve Bank through that again."
Update - Reserve Bank responds to report
Late on Tuesday, Reserve Bank Governor Adrian Orr issued a statement saying the Reserve Bank, in addition to its five-yearly statutory review, "we are also reviewing our recent performance in conducting monetary policy, including the use of additional monetary policy tools."
"This monetary policy review will assess inflation and employment outcomes relative to the targets outlined in the Remit, and the decisions taken at various times based on the information available at the time, relative to other central banks, and relative to likely alternative economic outcomes if these decisions had not been taken," Orr said.
"The decisions of the Monetary Policy Committee are always made with the information at hand at the time. This information and the assumptions made at each decision point are outlined for all to view in our Monetary Policy Statements," he said.
Orr also rejected suggestions that climate change, Te Ao Māori, and financial inclusion, distracted the bank from monetary policty.
"I regret that the Committee – and society at large – has been confronted with the COVID-19 pandemic, and other recent events that have caused food and energy price spikes. We are a learning institution, and through the open process of the Remit review and the monetary policy review, we will be very clear on our lessons learnt as we forever seek to do a world class job for the people of New Zealand."
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