Finance Minister Grant Robertson has named New Zealand Superannuation Fund CEO and ex-Reserve Bank Deputy Governor Adrian Orr as the central bank's new Governor.
Orr will succeed Acting Governor Grant Spencer from March 27. Robertson says Orr was unanimously recommended to him by the Reserve Bank's board. Orr has been appointed for a five-year term, which will follow Spencer’s six-month term. Spencer succeeded one term Governor Graeme Wheeler in September.
Orr, given his previous stint as Deputy Governor and Head of Financial Stability at the Reserve Bank between 2003 and 2007 and highly successful 10-year run as CEO of the NZ Super Fund, was considered a serious contender for the Governor's role. The leading internal contender was Deputy Governor and Head of Financial Stability Geoff Bascand, who confirmed to interest.co.nz in August that he was keen on the job. Orr's communications skills may have counted in his favour, especially as this was an area of perceived weakness during Wheeler's five-year tenure.
Established by the Helen Clark and Michael Cullen Labour-led government to help meet the rising cost of superannuation payments to retirees, the Super Fund began investing in September 2003 with about $2.4 billion. The National-led government stopped making contributions to the Super Fund in 2009, with the Government having tipped in about $12.34 billion of taxpayers' money to that point. The new Labour-led government plans to restart contributions.
The Super Fund, which currently stands at $37 billion, has returned 10.5% p.a. since inception, - after costs and before NZ tax. Over the last five years it has returned 16.2% p.a. The Super Fund has also been one of NZ's biggest corporate taxpayers, with its $1.2 billion 2016/17 tax bill representing 9% of the total New Zealand corporate tax take. (Here's an interest.co.nz video interview with Orr from 2015).
'The skills to successfully lead the Reserve Bank through a period of change'
Attending the Prime Minister's post-Cabinet press conference on Monday afternoon, Robertson told media Orr has the skills to successfully lead the Reserve Bank through a period of change. Robertson says the first phase of the Government's review of the Reserve Bank Act, looking at the objectives and decision-making processes and role of the Board, will be largely completed by the end of March when Orr's tenure begins.
Robertson says, as required by the Reserve Bank Act, he'll sign a Policy Targets Agreement (PTA) with Orr before he takes up his appointment.
“While it will not be possible to pass legislation to amend the Act to reflect any changes from the review before the PTA is signed in March 2018, we will ensure that the new PTA is developed in a manner consistent with the direction of reform. If necessary, the PTA will be revised again after the Act has been amended to reflect any changes from the review that cannot be reflected within the provisions of the current Act," says Robertson.
"He [Orr] has run the Super Fund extremely well. It is one of the most successful sovereign wealth funds in the world. So the experience he got working in the real economy will be very useful as we move forward down the path of change we are going down with the [Reserve] Bank," says Robertson.
'When I thought about people who could do the role he was there'
The Finance Minister described Orr as a person he has long held in high regard for the work he has done at the Super Fund.
"And certainly when I thought about people who could do the role he was there."
Robertson said Orr was near the top of his list of preferred candidates.
"I do think this will be an appointment that will be welcomed right across the financial sector. Mr Orr is highly regarded. He does have expertise in the technical sense from his time at the [Reserve] Bank previously, and is obviously a very well respected CEO as well. We're delighted about the appointment," Robertson says.
"We do want to make sure the [Reserve] Bank has a focus not just on price stability but also on how do we maximise employment, how do we ensure that the overall wellbeing of New Zealanders is taken into account. The review group is getting underway and looking at what kind of language could be included in the [Reserve Bank] Act. We'll use that to reflect into the PTA," Robertson says.
Robertson's statement quoted Reserve Bank Chairman Neil Quigley extolling Orr's virtues, including significant breadth of knowledge across central and commercial banking, economics, financial markets and regulation.
“Together with his chief executive experience at the New Zealand Superannuation Fund, the Board agreed unanimously that he can bring to the role of Governor of the Reserve Bank strong leadership and commitment to ensure the Bank is fit for its wide role in the New Zealand economy,” Quigley says.
'A significant pay cut'
Robertson told media Orr was part of the Reserve Bank's new Governor appointment process before the Labour-led government took office. He says Orr’s salary will be “within the range of the current governor," noting this would involve "a significant pay cut."
Orr's total 2016-17 remuneration was a bit over $1.2 million. The top paid Reserve Bank staffer disclosed in this year's annual report - presumably Wheeler - received between $850,000 and $859,9997, including a payment of $101,000 for accrued annual leave that wasn't taken.
Orr's pay rises over the past two years came under criticism from State Services Commissioner Peter Hughes and the previous National-led government.
Orr has been CEO of the NZ Super Fund since 2007. From 2003 to 2007 he was Deputy Governor and Head of Financial Stability at the Reserve Bank. He was Westpac's New Zealand Chief Economist from 2000 to 2003, and Chief Manager of the Economics Department at the Reserve Bank from 1997 to 2000. Orr has also worked at the National Bank of New Zealand, the Treasury, the OECD and the New Zealand Institute of Economic Research.
Below are comments on Orr's appointment from Westpac NZ chief economist Dominick Stephens.
Adrian Orr has been appointed Governor of the Reserve Bank of New Zealand, and will begin his five year term on March 27.
This will be seen by markets as a balanced and credible choice.
Adrian is currently Chief Executive Officer of the New Zealand Superannuation Fund. He has done two previous stints at the Reserve Bank - from 1997 to 2000 he was Head of the Economics Department, and from 2003 to 2007 he was Deputy Governor and Head of Financial Stability. Between those stints he was Chief Economist at Westpac, where a key part of his role was to monitor and forecast the Reserve Bank's actions.
While this is not an internal appointment, Adrian is closer to being a Reserve Bank insider than other recent Governors. Neither of the past two Governors had ever worked for the Reserve Bank before they were appointed, and Don Brash worked there only briefly as a graduate.
Adrian will start with an excellent understanding of the Reserve Bank and both of its key policy functions, monetary policy and financial sector regulation. He is well known as a strong communictor and is no stranger to the media, which bodes well for the clarity of communications with financial markets.
The key area of interest to us is how the new Governor will interpret the intended "dual mandate" - the Government's intention to have the Reserve Bank target both employment and inflation. The law won't be changed before Mr Orr starts, but the Policy Targets Agreement signed by the incoming Governor and the Minister of Finance will reflect the spirit of the impending law change, so the RBNZ's reform will presumably start immediately.
We have been wary of the dual mandate, because it might make it harder for the Reserve Bank to raise interest rates and rein in inflation when it is too high (since doing so could conflict with a directive to maximise employment). With Adrian Orr as Governor, we would expect the Reserve Bank to remain realistic about what monetary policy can achieve in the long run, while at the same time paying attention to employment over economic cycles.
The New Zealand dollar rose half a cent on the news of the appointment, and interest rates rose slightly.