The Reserve Bank and regulatory officials were against the idea of putting a Treasury observer on the central bank’s new decision-making committee, the Finance Minister has admitted.
The new Policy Target Agreement, signed by incoming Governor Adrian Orr and Grant Robertson on Monday morning, establishes an official seven-person board responsible for major Monetary Policy decisions, such as the official cash rate (OCR).
Of the seven, three will be external and four will come from within the Reserve Bank.
Robertson told media that in addition to this, there will be a Treasury representative who will sit on the committee as well.
But the Finance Minister says they will just be an observer and won’t have voting rights.
“Both the independent panel and the Reserve Bank themselves did not favour there being a Treasury observer as we went through the process.”
But Robertson says he would not describe it as “violent opposition – it was more around the question of whether or not they [saw] the value and the use of it.”
He says the “healthy disagreement” is relatively minor in the “greater scheme of things.”
Under the Reserve Bank Act of 1989, the Reserve Bank operates independently of the Government. The Treasury is the Government department that handles its finances.
The main issue, Robertson says, was not around any concerns that the Treasury representative would stifle the decision-making process but more around concerns about what the value of the member would be.
“The Treasury’s participation is as a representative and observer; I don’t believe there will be any issues whatsoever.”
Their job won’t be to report back to the Finance Minister as the minutes of the committee meetings will be published.
Asked how he felt about the Treasury representative sitting on the committee, Orr says the fact that the Treasury are there “as observers and only observers is very healthy.
“The bank remains independent – to have confidence in your independence you should be open and allow people to put views on the table or listen, share and exchange,” he says.
“The Treasury are there, I believe, to better assist the coordination of monetary and fiscal policy.
“But it’s the Monetary Policy Committee that has to make the decisions.”
The committee’s make up
Robertson says the three external members of the committee don’t necessarily have to be Monetary Policy experts.
“The bankers are experts – what we will be looking for among the externals is people who can help with the implementation of the new objectives – people who have a wide view around the real economy, how it operates as well as a good understanding of the role of Monetary Policy.”
He adds that there are people within New Zealand who can fulfill these roles.
Orr says he welcomes the implementation of an official committee, saying it is a strong step forward.
“I have just finished 11 years of making investment decisions with the New Zealand Super Fund via a committee structure and it works extremely well.
“You can have open and diverse discussions and then get on and make the decisions.”
The committee style decision-making board aligns closely with that of the US Federal Reserve and the Australian Reserve Bank.
However, unlike in those jurisdictions, members of the RBNZ’s committee will not be allowed to make speeches or comment on Monetary Policy matters.
Robertson says the Governor of the day is the spokesman for the committee.
“[The members] will be playing an important role in making the decision but it’s not helpful for anyone for all the members of the committee to be giving speeches or going out and saying things.
“We want there to be a constant voice on the decisions of the committee and that will be the chair of the committee.”