'You don't have to keep shouting... I imagine it's been heard' - RBNZ Governor Adrian Orr on his calls for the Government to spend more to stimulate the economy

Reserve Bank (RBNZ) Governor Adrian Orr has turned down the volume of his calls for the Government to spend more to help stimulate the economy.

Since the RBNZ in August made a big dent in its dwindling monetary policy ammunition by cutting interest rates by 50 basis points to 1%, Orr has been vocal about the RBNZ’s need for “friends”. In other words, fiscal policy to support monetary policy.

During the press conference following the August Official Cash Rate (OCR) review, Orr explicitly told government, businesses and households to “wake up and go and spend”.

However, the RBNZ’s Monetary Policy Committee, said in its latest Monetary Policy Statement released on Wednesday, that its members “noted that fiscal stimulus could be greater than assumed”.

Asked by interest.co.nz, in a press conference, what had happened for this assumption to change, Orr said the Bank didn’t have any “underlying information” but was essentially just noting the uncertainty around the time it takes for the Government to get its money out the door.

Indeed, the Committee said members “discussed the potential delays in implementing approved spending and investment programmes".

Asked why there seemed to be a change in tone by the RBNZ in relation to its commentary around government spending, Orr said: “You don’t have to keep shouting to the extent that it’s been repeated many many times in the press.

“I imagine that it’s been heard. We don’t have anything to add to that.

“We’ve been working through what we can do with our tools; how we’re trying to achieve our inflation projections, and fiscal policy will be stated.

“We are confident around the current policy setting. We put a little bracket there - the hope that it’s followed through on. We operate off whatever the current fiscal policy is.”

However, Orr later in the press conference pointed out that New Zealand has “well identified infrastructure demands and needs”, a “healthy” government balance sheet and low interest rates.

“This is, if needed, a time [for] fiscal spending,” he said.

“That’s not our job. They [government] will do what they do, and we’ve made our message very clear…

“Many countries have suggested that monetary policy tools may be secondary to some of the fiscal policy tools. We’re not in that position at the moment, but we always like to have friends.”

Interest.co.nz, the day before the OCR review, asked Finance Minister Grant Robertson why the Government wasn’t front-footing fiscal stimulus in the same way the RBNZ had been front-footing monetary policy stimulus.

In other words, why it isn't spending a whole lot more upfront to prevent the economy really sliding downhill, in the same way the RBNZ had pre-emptively cut the OCR by 50 points in August. It would take a while for tax cuts and/or more welfare and infrastructure spending to filter through the economy, in the same way it takes a while for lower interest rates to take effect.

Robertson responded: “My argument is that we already have. Budget 2019 included an enormous increase, relatively speaking, in both operating and capital spending. So I’d argue we already are front-footing it.

“But we continue to look for opportunities to do more.”

Robertson wouldn’t provide a definitive answer when asked what sorts of opportunities he was considering ahead of Budget 2020. He said it was about striking the right “balance” between different types of spending.

Robertson is due to publish his Budget Policy Statement on December 11, when Treasury releases its 2019 Half Year Economic and Fiscal Update. 

His self-imposed net Crown debt target of 20% of GDP remains in place until 2022, after which time it has been extended to between 15% and 25% of GDP.

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