David Hargreaves on RBNZ Governor Graeme Wheeler's final curtain call

David Hargreaves on RBNZ Governor Graeme Wheeler's final curtain call

By David Hargreaves

I don't have a clue what Graeme Wheeler's taste in music is.

I'm guessing, however, based on his final press conference as Governor of the Reserve Bank that Wheeler is more Walker Brothers than Frank Sinatra.

That is, he's more likely to hum 'No Regrets' than 'My Way', - though having said that, maybe he's a fan of the somewhat more defiant alternative reading of that Paul Anka-written song.

I only had one question I wanted to put to Wheeler in that last press conference; namely, did he have any regrets?

In the event, the Governor quickly moved to head off such final questions by saying that he will be making a speech.

He didn't say when the speech was going to be or where.

My guess is that it won't be open to the media and he won't answer questions after it.

This is a disappointing end to this Governor's tenure, but given what's come before, not surprising.

As I have opined previously, this is a Governor who has during the course of his five year term increasingly tended to disappear.

This could be unfair, but he has not seemed to welcome the opportunity to explain himself - and some of the things the RBNZ has done under his watch would have benefited from better explaining.

If there's one perception that would linger over the RBNZ following the last five years, it's that interest rates have been set too high and that inflation, consequently has undershot the RBNZ's targeted 1% to 3% range, with an explicit target (added by this Governor) of 2%.

At the centre of this is the decision in 2014 to hike interest rates four times, with these hikes then having to be more than reversed over the following months and years.

Now, hindsight is a spectacularly wonderful thing. Everybody can say they might have done things differently. The RBNZ could not have forecast the collapse in world oil prices. Who did?

Never conceded

But the amazing thing is that Wheeler and therefore other RBNZ officials have never to my knowledge conceded that the interest rate hikes of 2014 were wrong and a mistake - even with the glorious benefit of hindsight.

And Wheeler in his final press conference was again taking the line simply that the bank in making those interest rate hikes was acting on the information it had at the time and when the information changed it retreated and then cut rates again. No suggestion of any admission that the hikes were a mistake.

Does it matter? Don't know, to be honest. The economy is trucking along pretty well, so having interest rates that were too high has maybe not damaged us. But could the economy have been going even better if that mistake - and yes, I'll call it that - had not been made?

In its 2016 statement of corporate intent, the RBNZ in its list of priorities for the 2016-19 put at number 1: "Continue to deepen our understanding of the current drivers of low inflation and their consequences for the economy and monetary policy."

In other words the bank had been baffled by why inflation was staying so low, when all its previous means of forecasting inflation had suggested it should have gone up.

The latest Monetary Policy Statement from the RBNZ shows its now looking differently at price setting behaviour and inflation causation.

Actions speak louder than words

This is not the action of a central bank that thinks the work it did three or four years ago in identifying inflation, and therefore where interest rates should be set, was on the money.

Whether it chooses to concede it publicly or not - and 'regrettably' seemingly not - the RBNZ's actions concede it has made mistakes. 

I just don't see why they couldn't say that.

I say again, whoever gets the Governor job next time - well, I hope they are open, accessible and prepared to concede occasions when they might be wrong.

Hey, I get things wrong all the time. It's called being human.

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You will wait until hell freezes over for that admission.

I disagreed with this decision at the time and my comments were met with outrage , but to be fair Wheeler has done a great job keeping the good ship New Zealand steady

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Eh?! Household debt is at 170% of income?! There had been a debt binge the proceeds of which have been tipped into into the housing market? There is nothing "steady" about that. Private sector mortgage debt is a time bomb. If RB have got that bit wrong, does it really matter what else RB got right? The RB was and is far too late with macro pru regs to control that.

So you are saying Wheeler should have increased rates and held them there.

I agree, but the screaming heads in this country would have drowned you out - long ago

No, I am saying macro pru regs should have been brought in a lot sooner. Bringing them in at 10x income....I mean, the horse has well and truly bolted. Interest rates aren't the right tool for this, we need to control leverage.

The thing is that it has turned political . So they are unlikely to bring that sort of thing in election year, as it could affect the party people vote for, due to people associating the decision with the party in power at the time.

And it did at least give some old timers an opportunity to lock in some meaningful long term term deposits and for a while, increase returns on the perpetuals.

For once I'm with you Boater. I reckon Wheeler has done a reasonable job

"the decision in 2014 to hike interest rates four times"
There can be any one of a number of reasons that Wheeler hiked; the most obvious being to temper the 'enthusiasm' of the property market. A quick, sharp shot-across-the-bows was one possibility for the rises, and when that didn't work, he negated the rises and set off down the LVR route; that also came with it's issues - discrimination between regions being the most obvious. But interest rate moves in a managed economy aren't of themselves solely related to 'inflation' or any other sole indicator. They are about the only tool the RBNZ has. The debate in years to come will be more of an all encompassing "Did low interest rates work?" and some won't be surprised if the answer is "No!".

There used to be a saying around the market that the RB arrives too late, does too much and stays too long.

After the 2014 rate rises I was talking to a couple Wellington based builders, and they were why did he do that? They stated the phones just stopped ringing, just at the time when construction was starting to pick up. This essentially hobbled construction for 18 months in the lower north island.

At the time he was chasing imaginary inflation that never emerged. Three years later RBNZ has dialed back on fighting invisible enemies like a drunk.

Those rates locked quite a few people into high interest payments for some time. I managed to fix prior to the rates going crazy but all it did was make it really difficult to buy with the 20% LVR requirement (until the banks managed to rebalance their mortgage books). That alone took about a year to settle down. I knew a lot of builders stuck with houses and no one able or willing to buy.

That would have been just another day at the office.

Maybe the interest rates hikes in 2014 were not wrong...gee whizz....a whole article based on your wagging finger and frownie face...