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Documents show English pushed RBNZ board last year to toughen scrutiny of Graeme Wheeler's performance; focus on inflation and financial stability performance relative to PTA; letter sent and extra meetings called for

Documents show English pushed RBNZ board last year to toughen scrutiny of Graeme Wheeler's performance; focus on inflation and financial stability performance relative to PTA; letter sent and extra meetings called for

By Bernard Hickey

Finance Minister Bill English has quietly ramped up the pressure on Reserve Bank Governor Graeme Wheeler to meet his Policy Targets Agreement by moving to send the Chairman of the Reserve Bank, Rod Carr, an annual letter of expectations for the first time and requiring six monthly meetings with the Chairman to discuss the Governor's performance.

The Reserve Bank confirmed that English had sent the board the first letter late last year and it would be published with the bank's annual Statement of Intent in June.

Letters of expectation from the Minister to the boards of State Owned Enterprises are a regular occurrence, but the Reserve Bank's special status as a statutorily independent body with a special Policy Targets Agreement between the Minister and a single decision maker in the Governor has meant there has previously been no such letter. The letters to other SOEs often include detail about expected dividends and can be quite prescriptive.

The decision to draft and send the letter suggests English wanted to toughen up the scrutiny by the board of the Governor's performance at a time when he has come under sustained criticism over the eventually-reversed rate hikes in 2014, over inflation being below the bank's target range, and over the politically controversial LVR controls in 2013. The papers could be read as English putting the board on notice over Wheeler's performance and rebuking it for not assessing Wheeler's performance in 2014 toughly enough.

Documents released under the Official Information Act to Bloomberg and then more widely show Treasury recommending English send the board a formal statement of expectations in a letter, including around the areas of whether the Governor's performance on monetary policy was meeting the Policy Targets Agreement.

Bloomberg interview a trigger

English has commented with various degrees of frustration over the last year about inflation being below the 2% midpoint in the PTA for more than four years, which has coincided with the Reserve Bank's short-lived hike in interest rates in 2014 and the currency's stubborn strength despite slumping dairy prices.

English commented in May last year that inflation had been below the target for a "wee while" and that he was having discussions with the bank. English was more direct in an interview with Bloomberg in June last year when he said Wheeler needed to return inflation back to the target.

Unbeknownst to anyone outside the Reserve Bank and Treasury at the time, the documents from mid 2015 show English was working on drafting the letter and pushing for six monthly meetings with the board, rather than annual meetings.

The first document was a briefing note for a meeting between English and Reserve Bank Chairman Rod Carr on July 22 last year, which Treasury said had been requested by Carr and Wheeler to "discuss your expectations for the board." This meeting would have followed the Bloomberg interview, which was much more publicly critical of Wheeler than anything before or since.

Board didn't discuss Wheeler's performance in 2014

This note included details of annual board reports assessing the Governor's performance, although parts were redacted. It included quotes from the board reports to the extent that the board thought the bank's decision to hike in 2014 was appropriate and the LVR controls introduced in 2013 helped reduce potential financial stability risks. It also noted there was no specific discussion of Wheeler's performance in the 2014 report.

Treasury recommended the letter of expectations include an assessment of monetary policy performance in meeting the PTA and an assessment of the bank's performance in maintaining financial stability. It also said one area of the letter should focus on an assessment of the Governor's performance and it suggested more regular meetings with the board that focus on the Governor's performance.

"These meetings could be enhanced to ensure that they are focussed on the performance of the Bank and Governor. For example, these meetings could be structured around an agreed agenda and supporting briefing," Treasury noted.

The second paper released under the OIA, which is also heavily redacted, was from November 16 last year and included an attached draft letter of expectations from English to Carr.

"The purpose of the letter is to define your interests for the focus of the Board’s monitoring activities, and set your expectations for greater visibility of the Board’s activities," it said.

"The letter will be helpful to the Chair and the rest of the Board in undertaking their statutory duties, and should open up a broader conversation about how they can assess the Bank’s performance," Treasury advised.

"The letter will also build on your letter of expectations for the Governor, which you provided this year in March – and for the first time copied to the Chair, in order to support the Board in its monitoring role," it said.

The draft letter to the board said English relied on the board to advise him on whether the Governor had been successful in meeting his responsibilities, specifically monitoring monetary policy performance relative to the PTA.

"I expect the Board to provide me with a clear sense of its judgements and the basis for them in assessing performance in meeting the PTA, recognising that the policy targets have evolved to be flexible and forward looking," it said.

It also asked for an assessment of the bank in maintaining a sound an efficient financial system.

"I am particularly interested in how the objectives of soundness and efficiency are promoted and balanced," English was quoted as saying in the draft letter.

It also asked the board to monitor the bank's relationships with various stakeholders, including English, the Treasury, Australian regulators, the banks themselves and the wider public.

"The duties of the Board include keeping under review the performance of the Governor. I would expect to discuss your assessment of the Governor’s performance from time to time," the draft letter said.

"I would not expect you to limit your communications on the performance of the Governor or the Bank to the narrow criteria set out in section 53(3), as I hope those circumstances would apply rarely if ever," it said.

'More than just the Act's fail safes'

Section 53(3) of the Act sets out the conditions under which the board could recommend that the Minister remove the Governor from office. They include conditions such as serious neglect of duty or conflicts of interest.

"The annual Board report, as required under the Act, is the formal document that sets out the Board's assessment of performance. I expect this to provide enough detail to enable me and the wider public to understand how the Board has undertaken its review role."

The letter then asked for greater visibility of the board's activities through the year and asked for six monthly meetings with Carr.

Read together, the two papers suggest English has not been happy with the board's scrutiny of Wheeler through 2014 at least.

The publication of the Bloomberg article on the papers saw the New Zealand dollar fall a third of a cent immediately afterwards to 70.1 USc. It subsequently fell through the night to be 69.7 USc this morning.

'More contemporary context'

The Bank’s Board Secretary and Head of Communications, Mike Hannah, said by email that the Board received its first Letter of Expectations from the Minister late last year, "following discussions initiated by the Board seeking more detailed context of their role as the Minister’s agent."

“The Board’s role is described in high-level terms in the Reserve Bank Act. The Letter of Expectations provides more contemporary context, just as the Minister’s Letter of Expectations to the Governor does each year," Hannah said.

"It covers all the Bank’s functions, and the Board reports publicly on its assessment of the Bank’s performance in the Bank’s Annual Report at the end of September. The Bank will publish the Minister’s Letter to the Governor along with our annual Statement of Intent in June," he said.

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Wouldn't it be better, at this point, for the finance minister to review the global failure to associate official O/N interest cuts with rising CPI inflation in many global DM jurisdictions?


A good start would be including realistic housing costs in the CPI.

if you do that and the housing market "corrects significantly" we'll be so far into negative CPI that foreign money will flood out of NZ in panic causing a massive depression.....

But I'm told house prices only ever go up!?!!?

There's a reason you hear that.... because its true.

So how many times has London's property market declined in say the past 30 years. Don't forget it only takes one instance to make you wrong....

You'll never see 2013 prices again let alone 2004. It took a global meltdown in 2008 to drop 20% for a very short period of time. If you bought and sold and lost money you must be a special kind of stupid. No one loses money on London property.

Famous last words... But you implied property never goes down - so you lied....

Spoken like someone who doesnt own any.

Yay! lets see that. Mass personal debt is not my problem to subsidize


do what he wants drop the rate to 0 but make the banks hold 50% more capital see what happens then to interest rates.
thats the trouble when you put a farmer in charge of the books no idea

He hears all day long how farmers are struggling, paying 4-5% on domestic loans when foreign buyers rock in and buy our farms on 1-2% interest rates. The Govt isn't going to stop foreign farm ownership (unfortunately) so the next best thing is to give them a level playing field. Rates to 0.5% and do it quick smart.

The RBNZ relied on incoming GDP data as a reason to hike in 2014. What they failed to do was to reverse course when it was obvious that the incoming revisions to that data was not consistent with the need to raise interest rates . New Zealand has not had two consecutive quarters of 1.0 percent growth in almost a decade, within which was a dairy boom and a migration surge.The RBNZ often quoted output to grow at above capacity was simply central bank speak The RBNZ made a grave error. Individuals and businesses are still paying for the RBNZ mistakes. Graham Wheeler should resign .Central banker of the year , what nonsense.

Geez Henry . I did not realise I was an abject failure or are you referring to the RBNZ. I notice Pengxin group via Dakang have the inside running on the Kidman farm empire. Amazing to think that Dakang are being investigated by the Shenzhen financial authorities for a number of financial dealings and Shanghai Pengxin have been advised to stop pledging shares to same company. How anyone believes they are a private company beggars belief. But then again we are beholden to China..

Not you our Pat.

Is Gary still in the tent?

Dakang director Gary Romano said Australian Rural Capital would provide expertise in the local agriculture sector.

Mr Romano and ARC spokesman James Jackson said the consortium wanted Kidman to become an even stronger player in Australia’s beef cattle sector, and transform it into a global brand for beef and related products.

The Kidman board is recommending shareholders accept the consortium’s offer subject to no superior proposals.

Now that is a surprise, Romano back. I do not believe the FIRB will allow it to go through. Hunan Dakang courts controversy wherever it appears. The sheep farming fell through in China because the locals did not want to release the land , a few too many protests Hunan Dakang are desperate to buy any ag land , as the money it previously raised was for this purpose. Its why the regulatory authorities are all over them as they were trying illegally to use the money for other purposes . If they cannot purchase ag land they will need to return all raised funds. Thats when it all unravels. The reality is Shanghai Pengxin is government controlled.


The problem is two fold;
- National are setting the RBNZ up to fail with their current policies.
- Infaltion targeting is failing.

Actually inflation targeting has been a success; they slayed the beast that is inflation. John Key should be celebrating this achievement, or maybe he's saving the party for achieving official deflation.

Its happened all over the world. Heralding John Key for this is like saying Labour were competent between 2000-2008.

What rubbish. Why would national want the RBNZ to fail? Inflation targeting does work. Do you see any inflation around you? We need deflation targeting now.

Please read what you just commented...I'm sorry, but it is crazy talk. "Deflation Targeting"?
I can't tell if satirical, or unintentionally fundamentally incorrect..
I never said National wanted the RBNZ to fail, I said that the current policies are setting it up to fail. The RBNZ are in the interesting predicament whereby their key framework isn't working efficiently in the current environment. This is not something new and likely a result of a change in the macroeconomic dynamic. Think Phillips Curves, money and exchange rate targeting for examples of this in modern economic history.
Currently the RBNZ is tasked with controlling inflation in the face of declining commodity prices, surging migration, an over-cooked housing market, and skyrocketing levels of personal debt. Without intervention by the government on these factors (where possible), they are directly affecting the ability of the RBNZ to perpetually provide relevant monetary stability. Hence, setting it up to fail.

It does need Government intervention including a policy change for RBNZ. Bill English said he didn't see the need for it. The Government won't do anything until it's run into the ground.

Best to target 5% deflation. We would have the lowest interest rates in the world and the highest house prices until the economy shrinks to breaking point.

Currently the RBNZ is tasked with controlling inflation ???

Nah, the global gnomes are doing that - it's so under control they don't know what to do

This NZ government wants more inflation and English is setting Wheeler up to fail, to do something the rest of the world can't do - even the gnomes

Pot calling the kettle black...c'mon English, you guys have been so hands off for such a long time.


Yes indeed.
Pot and black immediately came to mind.
At least Wheeler tries with his limited toolbox.
Key and English just make like ostriches.

Wheelers toolbox has interest rates in it. Last time I checked hes not using that tool nearly enough.

Key and English are earning hundreds of thousands a year to do nothing, and blame any problems the country might face on any one else, anyone other than them.
Blame the councils, blame the RBNZ, blame Labour (8 years later), blame civil servants.
Lucky for them NZ's Mainstream media well and truly hand in glove, and most in NZ are still asleep.

Clearly English doesn't like his efforts at addressing the housing problem. IE National are fully behind the ever increasing house prices. They are doing nothing meaningful themselves and are trying to attack somebody who is.

Yeah Wheeler, stick to your job so the government can ignore doing theirs!


Im not voting national this time ... and i own a house. National have sold my kids up the river (the shanghai river that is).

Wheeler deserves kiwi of the year award for his efforts in saving people namely first home buyers..... its called tough love. I think he is looking out for us in a way.


..yeah I'd agree...what on earth is he supposed to do with such a fruit cake of a govt. Man i bet he would love to open up and tell us what goes on behind the scenes with billy boy and what he really thinks of this sad arse excuse for a govt. My political profile sure has changed in the last 2 years or have many Nats.

Somehow 50% of Kiwis are still in lala land though, it beggers belief.

So you think Wheeler is looking out for you regarding the potential implementation of the OBR?......serious saver?
Mate, the RBNZ is only looking out for banks. Nothing more, nothing less.

Good on Bill English. Wheeler has targets to meet just like the rest of us. Bill is showing good goverance.

Nothing new here...Abject failures, one and all.

Fiddling the book, whilst others get burnt. And avoiding the issues, they fact....scammed their own Middle Class citizens for.

Over paid, over here and over indulged and certainly...over valued as a complete entity. Did I mention, no honesty.

Sold a pup, got a dog, has fleas and imported ticks. I cannot say from where, might upset the balance of latest...payments.

So over it...NZ.

I would vote for change....any coppers about....??

or are we only after penny pinchers..middle income .and leaving the obvious out of the equation...yet again. ??.


Well now the rationale for Wheeler's about-face and surprise cut last time around is obvious.

So who needs a Reserve Bank?

The Policy (now that it is enforced) effectively says if inflation <1% decrease interest rates, inflation >3% increase rates. Simple programming logic - this must be what they mean when they say no one will have a job in 40 years.

I'm glad we have a Reserve Bank Governor who actually has his head screwed on straight. If he wanted a quick way to increase inflation he could always pull out the printing press, but we have seen what QE has done overseas to GDP.

It’s about time the Govt pulled their head out of the sand and actually spent a bit of money on capital projects to grow GPD, Its all well in good to have low Govt debt but if you have a country drowning in private debt, with no inflation to devalue it. It just doesn’t end pretty.

He should be sacked. If he is so worried about house price growth due to rate cuts hurry up and implement policy to curb it and slash rates to .5% and do it now!

Simple question - why?

Because its the new norm. Our $ is too high, our exporters are getting smashed, importing inflation with a weaker $ is in his mandate. I could go on. He's been late on everything, he makes forward guidance comments to the market then does the opposite. He throws in rate cuts when no one is expecting it. The market looks to his comments and acts accordingly. As it stands how can they trust him?

Why is it the new norm - it may only transient. Our dollar is high because the rest of the world is worse than us. There is no guarantee that dropping interest rates will result in a drop in the exchange rate - nothing is working like it did in the past - this is the new "norm". Things change - you sound as if you want everything to be predictable - sorry life is not like that.

I find it amusing how people get excited about one data point - and rush around like headless chickens and base decisions on very limited information - it just creates noise / volatility.

If you honestly cant see that rates sub 1% are the new norm you really don't know anything about anything and are just being argumentative.


I was gonna save this for the Friday Funny from comedian Raybon Kan...

But it was too serious for that.

Well said Raybon....insightful... well said. ...and not a site or in our Daily Papers.

We seem to have reached the stage of corruption where the media are complicit lapdogs and the only decent political commentary is from comedians.


The money is feeding the property market. The first home buyer or renter have no money left i.e. very low buying power as they are either paying most towards mortgage or need to be ready with equity. The excessive heat in Auckland is never been good for productive assets. It only creates a class of few rich people and the ultimate winners are real estate agents who despite down turn keep saying market is hot which serves them. It is time for the Government to act in the interest of its citizens else it will be too late ......

I'm a National voter but talk about them blaming the wrong guy !!!! National knows what the problems are and how to solve them but they are sitting on their hands.