In a controversial move, Finance Minister Grant Robertson has reappointed Adrian Orr as Reserve Bank Governor for another five years.
Orr is now about to head into a much worse inflationary environment than even his own forecasters had been predicting.
National opposed his reappointment and now says they want an inquiry into the way the Bank has managed the inflation crisis before they will confirm whether they would keep him if they became the Government.
That much sounds like a political play.
In fact, National was much more cautious about his future as recently as two years ago.
Then, in December 2021, Finance spokesperson, Simon Bridges, told a podcast that he would not reappoint Orr if the decision was his to make.
“Ultimately, he has probably made things worse,” Bridges told the “Working Party” podcast. “His policy implementation has led to the housing problems; we’ve got the big inflation, and he’s been focused on a whole bunch of other things that may or may not be important.
“But these are not the job of the Reserve Bank, whether it’s Maori issues or climate change and the like.”
Bridges subsequently confirmed to POLITIK that was his view.
But he was shot down the next day by National’s then-new leader, Christopher Luxon, who said B
ridges’ comments did not reflect the party’s position.
“What Simon was raising was, fundamentally, there has been mission creep with the RBNZ,” Luxon said, echoing the view of the likes of the right-wing think tank, the NZ Initiative, which is partially funded by the country’s major retail banks.
“We don’t want it to see it get politicised because we don’t want to undermine the independence and the trust that it has both with the government and the public.”
Luxon was careful in a number of interviews to emphasise that his criticism of the Bank was over its “mission creep”; he did not mention inflation.
Meanwhile, the Chief Economist Eric Crampton of the right-wing Think Tank, the New Zealand Initiative, has kept up a stream of social media posts attacking Orr personally.
His predecessor was Matt Burgess, now the National Caucus Chief Policy advisor.
A typical Crampton tweet was posted back in June referencing the “creep” that Luxon talked about.
“I can kinda understand why Labour hasn’t fired Adrian Orr yet,” Crampton wrote.
“But they could at least send a very strong signal that he will not be reappointed, and that the next Governor will care about actually fulfilling the Bank’s remit.”
Crampton described Robertson’s decision to reappoint Orr as the stupidest thing he had done.
When Luxon made his 2021 comments about Orr, annual inflation was running at 5.9 per cent; currently, it is 1.3 per cent higher at 7.2 per cent.
But as far as National is concerned, that 1.3 per cent increase has made a significant difference, and it is now willing to politicise Orr’s appointment.
It advised the Government in a letter in September that it would not support his reappointment.
“We do not support the recommendation to reappoint Mr Orr for another five years as Governor of the Reserve Bank,” wrote Finance spokesperson Nicola Willis.
“Inflation is at a 32-year high of 7.3 per cent. It has now been outside the 1-3 per cent target range for five quarters, and the Reserve Bank forecasts it will remain outside that range for another two years.
“These sustained levels of high inflation have contributed to a cost of living crisis for New Zealanders.
“In light of these facts, we have previously called for an independent review of the Reserve Bank’s performance.
“In the absence of any such external assessment, we are unable to endorse Mr Orr in his position as Governor.
“It would be reckless for the current Government to proceed with this appointment without the support of the Opposition.
“Therefore, we propose that a temporary appointment is made so that the incoming Government has the opportunity to endorse a Governor that they have confidence in.”
But the Bank itself added fuel to Willis’ argument today with the release of its survey of inflation expectations.
Though the survey was restricted to only 33 respondents, they replied that they were expecting inflation over the coming year to go up from earlier estimates of 4.86 per cent to 5.08 and for two years out, they have raised their expectations from 3.07 to 3.62 per cent.
“Today’s survey results will be of concern to the Reserve Bank, suggesting they have more work to do to convince survey respondents, and potentially the public in general, that inflation will come down,” said ASB senior economist Mark Smith.
“It raises the odds of 75 basis points rather than a 50 basis points Official Cash Rate OCR hike in the November Monetary Policy Statement.”
Inflation expectations are rising across the Tasman too.
The weekly ANZ-Roy Morgan Consumer Confidence survey released yesterday showed that household inflation expectations had climbed to 6.8%, their highest level since data was first collected in April 2010.
As far as Orr’s future is concerned, the Reserve Bank Act gives the Minister of Finance considerable latitude to sack the Governor.
It says: “The Minister may advise (the Governor General) the removal of the Governor with as little formality and technicality, and as much expedition, as is permitted by the principles of natural justice; and a proper consideration of the matter.”
Willis is not saying she would sack Orr if she became the Minister; rather that she would wait until the independent review had been carried out.
But during Question Time in Parliament yesterday, she revealed very little sympathy for Orr.
She asked Robertson whether he agreed with Orr that “for us to have maintained inflation between the one to three per cent target range, we would have had to predict the 2022 Russian invasion of Ukraine back in early 2020”, and whether it was acceptable for the Governor to wash his hands of any responsibility for domestic inflation.
There has never before been debate between the two main parties over the appointment of the Governor, but Orr has been an unusually frank Governor, and he has extended the Bank’s public comments into areas like the Treaty and climate change.
Those moves, though, have led to the criticism of “mission creep.”
Orr defended the emphasis on climate change at last week’s Monetary Policy Statement media briefing.
“You won’t get a mortgage if you don’t have insurance. So they are joined at the hip,” he said.
And he went on to say that Orr that there were very strong signals globally that relative risk pricing would be coming in.
“Those in more prone regions, whatever the particular danger, whether it’s earthquakes, volcanoes or floods, will be paying premiums accordingly.”
Whether Orr would be able to get insurance on completing his second five-year term as Governor is another matter.