Adrian Orr walks off into the sunset
The Reserve Bank governor shocked the business world with his resignation announcement. Why now, and why so sudden?
Mōrena, and welcome to The Bulletin for Thursday, March 6.
In today’s edition: Minister intervened to get fossil fuel lobbyist onto energy conservation board; critics say Prebble failed to do his due diligence before taking Waitangi Tribunal job. But first, midway through his term, the Reserve Bank governor has announced his resignation – effective immediately. What’s going on?
‘An embarrassment for the bank’
Adrian Orr has suddenly resigned as Reserve Bank governor, and no one wants to say exactly why. Neither the prime minister nor the finance minister, Nicola Willis, would be drawn on the reasons for Orr’s departure, while Neil Quigley, chair of the Reserve Bank’s board, said only that Orr “feels he's achieved the things he wanted to achieve” in the job and had decided it was time to go.
“Market participants” tell Interest’s Dan Brunskill the speed and suddenness of Orr’s resignation is “bizarre and surprising”, especially since it came just a day before he was due to open a monetary policy conference featuring former US Federal Reserve chair Ben Bernanke. Orr is no longer attending, the Herald understands.
In an opinion column in The Post (paywalled), Luke Malpass writes that “it is extremely rare – globally – for central bank governors to resign mid-term and almost unheard of for them to pull the pin, effective immediately. The way it played out was an embarrassment for the bank and everyone else involved.”
What Orr got wrong
In recent years, Orr’s pandemic-era stimulus measures – once seen as a lifeline for the economy – have been criticised as too much, for too long.
Last month a panel of leading economists said that in retrospect, both the government and the Reserve Bank overestimated the Covid financial meltdown, leading to excessive stimulus that fuelled inflation. ASB’s Nick Tuffley said that “we ended up throwing literally everything into” the crisis. “Perhaps the lesson [from the era] is being more onto it for signs you've done enough.” ANZ’s Sharon Zollner said those in charge of the economy should have been more willing to question their assumptions, reports RNZ’s Susan Edmunds. "If your economy has house prices going up the fastest in the world, would you have interest rates at practically zero and talk about adding more stimulus in every way possible? But hindsight is a wonderful thing.”
‘A very exasperated school principal’
Having helped pump the economy with record low interest rates, in October 2021 the RBNZ reversed course, raising the OCR harder and faster than central banks in other peer nations. In November 2022 Orr admitted the RBNZ was deliberately trying to engineer a recession to rein in inflation; by March 2024 he’d achieved that goal. As the screws turned on the economy, Orr’s post-OCR-hike press conferences took on the tone of “a very exasperated principal watching five million children refuse to come in from spending playtime and thus requiring a mass cash detention”, wrote The Spinoff’s Duncan Greive in January 2023.
Bank capital rules may have played a key role
With inflation now under control, Orr is stepping aside. Businessdesk’s Pattrick Smellie (paywalled) cites a few good reasons he might be going, involving both political tensions and policy battles. However Smellie thinks Orr’s stricter capital ratios – requiring banks to hold more capital to withstand financial crises – were likely a deciding factor. With the government eager to boost economic growth, Orr faced strong pushback from those who felt the strict rules stifled competition and business lending.
As for who might replace Orr, Smellie says while new acting governor Christian Hawkesby – formerly Orr’s deputy – is extremely capable, he’s basically more of the same. Prasanna Gai, an economics professor at the University of Auckland, could be the “internationally credible new broom” that the RBNZ is looking for, Smellie suggests. The NZ Herald (Premium paywalled) also mentions RBNZ chief economist Dr John McDermott (now heading up think-tank Motu), Treasury chief economist Dominick Stephens and current assistant RBNZ Governor Karen Silk as contenders.
Have thoughts? Join the conversation in the comments.
Minister intervened to get fossil fuel lobbyist onto energy conservation board
Simeon Brown overrode official advice to appoint fossil fuel lobbyist John Carnegie to the board of the Energy Efficiency and Conservation Authority (EECA), RNZ’s Eloise Gibson reports. Brown, then energy minister, had previously intervened to have Carnegie added to the shortlist of candidates. The EECA promotes energy efficiency, energy conservation and the use of renewable sources of energy; Carnegie is chief executive of Energy Resources Aotearoa, formerly the Petroleum Exploration and Production Association. “Carnegie previously criticised one of EECA's functions – giving out grants helping companies get off coal and gas – because it was shrinking demand for fossil fuels.” Also appointed to the EECA board was accountant Vijay Goel, who was selected “after Brown instructed recruiting staff to interview him, then overrode advice that he was not suitable for the job”, Gibson reports.
Prebble failed to do his due diligence on Tribunal job, say critics
Chris Hipkins has added his voice to a chorus of people who say Richard Prebble has no one to blame but himself for his unhappy tenure on the Waitangi Tribunal. In a Herald column yesterday morning the former Act leader announced he was quitting the tribunal, saying he refused to participate in turning the Treaty into a “socialist manifesto”. Treaty expert Dr Carwyn Jones is among those arguing Prebble should have done his due diligence to understand the work of the tribunal before accepting the position in October, Stuff’s Joel Maxwell reports. Hipkins thinks Māori development minister Tama Potaka also shares some blame for selecting Prebble for the role in the first place.
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While I know Lex Luthor will take no action whatsoever, Simeon Brown's over-reach deserves intense criticism and decisive action. Alongside Prebble's appointment to the Waitangi Tribunal (notwithstanding his abrupt departure), and Lester Levy as the Commissioner for Te Whatu Ora, this latest revelation is - at the very least - eyebrow raising; the government is clearly in the game of appointing individuals who are ideologically opposed to the roles they've been handed.
Adrian Orr should not be held liable for failing to accurately steer the ship with a canoe-paddle because Treasury ideologists refuse to steer using the actual rudder.
The proper tool for correcting over-stimulation of the economy by emergency fiscal measures is Supertax / Windfall tax (i.e. fiscal for fiscal) announced & imposed at the same time a the emergency measures requiring it. It's more immediate and more powerful, since those liable to pay it need to save money for known tax liabilities rather than spend it thereby creating unwanted stimulus. It's fairer, since those that have the money as it rises up the business hierarchy clearly have it to pay. Using interest rates places the burden onto already overstretched mortgage-payers.
There was a time all economists knew this- see Keynes's "How to Pay for the War". Top tax band was 99.25% for the duration of that crisis. Economists of our time are mere priests of an orthodoxy that supports policies that create conveyors of government money into the pockets of the already rich whether they 'earned it fair-and-square' it or not.