National Leader rejects Reserve Bank suggestion that review of its performance by overseas independent experts is enough; says proper review needed before Orr gets second term

National Leader and potential Prime Minister-within-a-year, Christopher Luxon, has rejected suggestions from the Reserve Bank that its own review of its performance by independent overseas experts was sufficient instead of a fully independent review proposed by National.

Luxon repeated his view that there would need to be a fully independent review before current Reserve Bank Governor Adrian Orr could be reappointed for a second five-year term from the end of March next year, which would include all of Luxon's first term in Government if elected. Luxon has criticised the bank for unleashing a 'wave of cash' that helped increase inflation beyond the Reserve Bank's target band. He has also referred to criticism by former Reserve Bank officials that the bank was 'incompetent' and reckless under Orr in calling for a review of the Reserve Bank's actions in the wake of Covid.

Orr said last week the Reserve Bank was a learning institution that planned to put out a report from independent overseas experts before the end of the year. It is part of a wider five-yearly review of the bank's monetary policy settings and operations.

Asked in Parliament if National would accept the review of overseas experts overseen by the Reserve Bank, Luxon said: "Our preference is to see something independent. As we said - an independent inquiry because it's a bit like judging your own homework and marking your own homework. That's why I think there'd be some real value in dispassionately going through that period of time post COVID and seeing whether we've got all those settings right."

Asked if he wanted a fully independent inquiry done before Orr was reappointed, Luxon said: "That was our view that we thought actually having our inquiry, as we proposed, was actually a good idea. We can have those findings before his term comes up for renewal."

The clock is ticking for the Reserve Bank board, Finance Minister Grant Robertson and a potential National Government-in-waiting over whether Orr deserves or should get a second five-year term before it expires in late March next year. The heat over what would normally be a routine and apolitical decision has intensified in recent weeks because of the trenchant criticism of the Reserve Bank's performance over the last three years under Orr, and the call for full independent inquiry from National. Orr refused to answer questions last week about whether he wanted a second term.

That creates the potential for a dangerous standoff between the operator of monetary policy and the operator of fiscal policy. Orr's predecessor as Reserve Bank Governor, Graeme Wheeler, a previous Reserve Bank chairman and grandee, Arthur Grimes, ex-Deputy Governor and Acting Governor Grant Spencer, and previous Reserve Bank Chief Economist, John McDermott, have all publicly criticised the bank's performance under Orr.

They have argued it should not have kept printing $55b through late 2020 and 2021 to push down longer-term interest rates, and that it was at least partly responsible for inflation surging to 7.3% this year, well outside the Reserve Bank's 1% to 3% target band.

Finance Minister Grant Robertson rejected Luxon's call at the time, describing Luxon as "Captain Hindsight" and saying he had confidence in Orr. Robertson also said he was working with the Reserve Bank board on the issue.

The issue emerged last year when Simon Bridges, then National's Finance spokesman, said he would oppose Orr's reappointment in the period shortly before the 'caretaker period' in the lead-up to an election.

Orr made a point at last week's Monetary Policy Statement news conference of specifying that a review of the bank's performance would be released publicly by the end of the year as part of the first once-every-five-years review of the Reserve Bank's new Monetary Policy Remit, which included a requirement to support full employment as well as targeting low inflation under changes to the Reserve Bank Act in 2018.

Luxon has called for the removal of the full-employment requirement.

Orr talked in the news conference about a two-step process in the five-yearly review, with an initial report including independent comment from overseas experts due before the end of the year, before a final review of the Remit early next year. The overseas-expert-included review was painted as proxy for the independent review.

The Reserve Bank of Australia is currently facing its own independent review, which was ordered by the new Labor Government under Labor Treasurer Jim Chalmers.  The overseas review would be released before the end of the year. That would give the board and Robertson time to assess a second-term decision. RBNZ Assistant Governor Karen Silk said former Reserve Bank of Australia board member Warwick McKibbin and former Bank of Canada Deputy Governor Larry Schembri were the overseas experts for the review. McKibbin's partner and fellow macroeconomic academic, Renee Fry-McKibbin, is one of the members of the RBA review.