The new Governor of the Reserve Bank, Adrian Orr, walked into his first Monetary Policy Statement briefing yesterday with his top shirt button loose and then proceeded to unbutton the Bank’s relationship with New Zealand as a whole.
He broke with convention from the moment he walked into the Bank’s briefing room offering a greeting in English, Maori, Fijian and, honouring his own heritage, in Cook Islands Maori and then – for good measure – sign language.
And the formal Monetary Policy Statement was accompanied with a leaflet explaining its main points using clip art style cartoons.
It is all part of a big change he is proposing to bring to the way the Bank communicates, and it has a very serious intent.
“I think our challenge is to speak in plain English as opposed to a high tech scientific language which only half a dozen people actually understand and even less are interested in,” he said.
“We do need to have a richer dialogue.”
It was no secret that when Orr was appointed one of the factors that impressed the board about him was his communication skills which he has most recently displayed as head of the NZ Super Fund.
So it shouldn’t be surprising that he has been trying to find out what people think of the Bank.
“We’ve recently completed a survey around what people think of us; the journalists in this room said ‘not much’ because we haven’t been very open according to their perceptions.
“We heard that loud and clear.
“The interesting statistic I found from the survey was that the vast majority of the public have no idea who we are.
“That is not necessarily a good thing if we are trying to raise financial literacy and make people think harder about all of the things that are important to us; soundness and efficiency in the financial system.”
Asked if there were things he wanted to change now he was Governor he said: “Absolutely, otherwise where are the challenges.”
And, again, he came back to communication.
“Some of the changes we have made very clear.
“We want to make sure that we are communicating very clearly out to a wider audience rather than just to half a dozen retail bank economists.”
In his two public appearances yesterday he kept coming back to communication and perceptions as central concerns for him as Governor.
He said he was surprised at how low business confidence was.
“How does that matter, I’m not sure.
“Generally it is business’s sense of their own activity which provides a better indicator of how they themselves will do.
“So they have got something else that is upsetting them.”
Later in the day in front of Parliament’s Finance and Expenditure Select Committee, he defined his role at the Bank, and that too broke with convention.
“The main thing I want to do with the role is to be a CEO more than a Governor because this is a fantastic institution,” he said.
“We need to be able to make sure it has a clear vision, and it has the people and the processes operating most efficiently.
“I also want to expand the dialogue that comes from the Bank because as exciting as monetary policy is, there are equally, if not more exciting, prudentially regulatory roles that we play and the world of notes and coins and all the excitement and challenges that are coming from that.
“These are really big parts of the business which is why I emphasise the CEO rather than the Governor.
“With prudential regulation, we are really in the face of insurers and banks around a whole series of issues.
“We need to speak out more about what those issues are otherwise the dialogue is filled in by them.”
The Bank currently is waiting for replies to a letter which has been sent to all retail banks and the Bankers’ Association asking what the banks are doing to avoid the misconduct revealed by their Australian parents during the Australian Royal Commission into banking.
“We’ve been talking very bluntly with the banks around their lending behaviours,” he told the MPS briefing.
“Remember banks don’t end up wearing the end outcome of it (lending), it’s the person who borrowed from the bank, and probably one of the wisest words I’ve heard from my staff members here is that a loan offer is not financial advice.”
And again he came back to the “dialogue” the bank is having with New Zealand.
“What I think this institution has been suffering from is a lack of open dialogue about what we have been doing for a long period.
“Instead we have let the banks and commentators own that space and not us.”
He said the Reserve Bank had been working hard with the banks on issues like adequacy of capital, lending and Open Bank Resolution which is aimed at allowing a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than the taxpayer.
“And most importantly, the role of New Zeal; and directors.
“These are New Zealand licensed and registered institutions.
“They may be owned from offshore, but they are here to do business in New Zealand for New Zealanders.
“When they attest, they are attesting to New Zealand law and our regulatory behaviours.”
And he stressed the importance of culture.
“We are saying the culture of New Zealand banks has to be for New Zealand and consistent with our rules and expectations.
“Show us again how that is happening.
“How is it different to what we are hearing from Australia.
“And we will be playing that out very clearly and publicly.”
The MPS was not only the first for Orr but also the first produced under the new Policy Targets Agreement which requires the bank to contribute to supporting maximum sustainable employment (MSE) within the economy.”
The MPS is careful to note that this does not mean the Bank is required to “achieve” maximum sustainable employment.
It also says that unlike inflation, MSE is not directly observable and can vary over time.
“This makes real-time estimates of MSE highly uncertain,” it says.
Therefore the Bank does not have a specific numerical target for employment
Instead, the Banks says it monitors a wide range of labour market indicators to form a holistic assessment of whether economy is currently operating at MSE.
But though it can’t be specific on the MSE, it is forecasting unemployment to continue to fall.
“Over the projection, employment growth is expected to continue to outpace growth in the labour force, leading to further tightening in the labour market,” it says.
“This labour market tightening is reflected in a slight fall in the unemployment rate over the next three years.”
But the high rates of employment are leading to problems in the construction industry; so much so that along with a shortage of land suitable for housing, the Bank is still clearly sceptical about the Government meeting its housing targets.
“The demand for housing is very clear,” said Orr.
“It’s the ability to supply the housing that is the challenge.
“The biggest constraint is access to affordable land, and more importantly affordable land that has access to the utilities.”
He said resources were also becoming scarce.
“You’ve seen labour costs in the construction sector rising ahead of other forms of labour costs.
“It’s just the outright supply to actually get on and do this stuff.”
He said the Bank was still working on Kiwibuild estimates from the Half Yearly Economic and Fiscal Update.
“But their (Kiwibuild) challenge will be the pace at which they can do that but also what are they crowding out elsewhere with resources or access to land.”
And if problems arise with Kiwibuild meeting its targets, from what we heard today, we can expect to hear them set out very bluntly by the new Governor.