Former World Bank managing director and vice-president Graeme Wheeler will be the next Governor of the Reserve Bank of New Zealand after current Governor Alan Bollard steps down in September.
Finance Minister Bill English made the announcement on Tuesday morning. Wheeler will take up the position when Bollard's second five-year term ends on September 25.
Wheeler would be governor-designate until a new policy targets agreement between the Finance Minister and Governor was finalised in the next few months, which was required before a new governor was appointed.
English said he did not envisage any major changes to the policy targets agreement, which currently requires Bollard to keep headline medium-term inflation within a 1-3% target band.
Current Reserve Bank Deputy Governor Grant Spencer was considered by financial market participants as the other major contender for the role.
Kiwi who rose to top of World Bank
“Mr Wheeler’s extensive experience makes him a highly respected figure in world financial markets and within New Zealand," English said.
"We were fortunate to have someone of his calibre available for this important role," he said.
From 1997 to 2010, Wheeler, a New Zealander, was employed by the World Bank. His most recent roles there included managing director operations (2006-2010), and vice-president and treasurer (2001-2006). Previously, he was at the New Zealand Treasury as deputy secretary and treasurer of the Debt Management Office.
Wheeler currently lives in the United States and runs his own advisory business.
In 2007 he was considered to be one of the leading contenders for the position of World Bank president after the resignation of Paul Wolfowitz. However, the role went to American Robert Zoellick, keeping with the tradition of having an American head the organisation.
As required under the Reserve Bank Act 1989, the Reserve Bank board of directors recommended Wheeler’s appointment to English, after an extensive recruitment process domestically and internationally, the Finance Minister's office said in a press statement.
“Given his experience and standing, combined with his technical and leadership qualities, the board considered that he has all the qualities required to become governor and chief executive of the Reserve Bank,” English said.
Current PTA working
English said he did not envisage any major changes to the policy targets agreement.
“I consider that the current PTA has served New Zealand well and there are benefits in maintaining consistency in the PTA," English said.
“However, the global financial crisis has focused some attention on monetary policy frameworks, and I want to ensure that the PTA continues to reflect best international practice," he said.
English also paid tribute to Bollard for his leadership at the Reserve Bank over the past 10 years.
“He helped steer the New Zealand financial system through the biggest global crisis in several generations. At the same time, he ensured that this country continued to enjoy one of the most stable inflation environments in the world," English said.
This morning the Finance Minister Bill English announced that he has appointed Graeme Wheeler as the next Governor of the Reserve Bank, for a five-year term to begin when Dr Alan Bollard steps down on 25 September.
Mr Wheeler has worked at the NZ Treasury as Deputy Secretary and Treasurer of the Debt Management Office. From there he worked at the World Bank as director of its financial services department (1997-2001), vice-president and treasurer (2001-2006), and managing director (2006-2010), that organisation's most senior staff role. In this position, he gained prominence for his role in the resignation of World Bank President Paul Wolfowitz after revelations of conflicts of interest.
Selecting an outsider is a notable move. Both of the previous Governors (Dr Brash and Dr Bollard) were surprise choices, and both were brought in with a mandate for changes in how the RBNZ operates. And like Dr Bollard, Mr Wheeler does not have central banking experience, so it would appear that leadership qualities were a key consideration.
We don't have any indication of how Mr Wheeler's approach to monetary policy will differ from Dr Bollard's, so the Policy Targets Agreement (PTA) that he will need to negotiate and sign with the Finance Minister by September will offer some crucial clues. The Finance Minister has said that he doesn't envision any major changes to the current PTA; however, he added that "the global financial crisis has focused some attention on monetary policy frameworks, and I want to ensure that the PTA continues to reflect best international practice."
However, the scope for change within the RBNZ extends well beyond this negotiation. The PTA is an agreement on the definition of "price stability", and how to gauge success or failure in reaching that target. More complex changes, such as shifting from a single decision-maker to a committee for monetary policy decisions, or widening the RBNZ's goals beyond price stability, would require legislative changes. It is possible that Mr Wheeler was chosen as someone who could shepherd through any such changes over the next few years.
One change that we can predict is that, as the next tightening cycle begins, the new Governor will find himself with a range of 'macro-prudential' tools that the RBNZ has been developing over the last few years. (Note that these also fall outside the scope of the PTA, which defines the ends rather than the means of achieving price stability.) The next five years are likely to be an exercise in operationalising these tools, educating the market and the public in how they work, and studying their effects.
We will provide further thoughts in a Bulletin today.
The appointment of Graeme Wheeler as the new Governor of the Reserve Bank is an opportunity for the Government to adopt a modern monetary policy, Green Party Co-leader Russel Norman said today.
"The Reserve Bank's one-tool toolkit is plainly inadequate for the economic reality we live in", said Dr Norman.
"Currently, the Reserve Bank faces a dilemma. If it cuts interest rates, it risks another housing bubble. Instead, it has done nothing, which causes a high exchange rate, hurting exporters and domestic producers.
“The negotiation of a new Policy Targets Agreement between Mr Wheeler and the Finance Minister is an opportunity to give the Reserve Bank a broader mandate and a wider range of tools.
"The Greens have outlined a range of possible tools the Reserve Bank could use, such as loan to value ratios. A debate on which tools are best suited for New Zealand's needs is urgently required.
“The appointment of a new Reserve Bank Governor is the time for that debate," said Dr Norman.