Reserve Bank Governor Alan Bollard has given the country good notice of his intention to retire in September, a sharp contrast to his predecessor, Don Brash, who suddenly announced he was leaving to stand for Parliament. It could not have been easy to step into the shoes of a long-serving governor who had declared his political colours. Nations look to their central bank leader for pure economic judgment devoid of political considerations and immune to sectional interests.
Dr Bollard has delivered that standard of judgment, as did Dr Brash. He has been a quieter figure, a product of the Wellington public service rather than the Auckland financial sector, but has spoken loudly when he felt it necessary. During the long boom his speeches contained frequent warnings that house prices were going too high and household spending was excessive.
He was not afraid to raise interest rates ever higher in the hope of containing the splurge.
When his interest rates made the dollar an attractive currency and exchange rates rose too high for exporters' good, Dr Bollard went to the overseas markets to try to talk it down. Property prices peaked in 2007, investment bubbles burst and finance companies fell over. New Zealand went into a shallow recession in 2008 and probably would have recovered smoothly had the global financial system been as well managed.
The crisis surprised Dr Bollard as much as any central banker. The poison of disguised "subprime" lending had infected most developed countries. Dr Bollard lowered his base interest rate quickly but calmly, watching the world economy with a wary eye for the inflation that could erupt as soon as consumer confidence recovers in extremely loose monetary conditions.
Inevitably his departure is inviting another outbreak of fancy that this may be the moment to broaden the next governor's remit. Inflation is said to be too narrow a focus, and growth and employment are more important. Critics have been saying this ever since the passage of the Reserve Bank Act 1989, and they are right. Growth and employment are more important. But inflation makes growth illusory and employment unsustainable. Low inflation is a necessary condition of economic growth and monetary control has proven it can keep inflation low.
Exporters complain that the high interest rates needed to counter inflation also give them high exchange rates that reduce their dollar returns. Others worry that low inflation created an excess of cheap money in the world that caused property price inflation, the bubble that ended in the global financial crisis. Dr Bollard's announcement comes amid much discussion of whether central banks need levers to contain asset prices as well as consumer prices.
At the very least, central banks will need to monitor their financial sectors much more effectively. Dr Bollard is already extending his bank's supervision to all deposit-taking institutions and insurers. His regulatory knowledge should continue to be tapped under a successor, whoever that might be.
There are few more important positions in New Zealand. The governor is entrusted with the primary means of maintaining stability and growth in a modern open economy. Nominally the responsibility is his, not his advisers. The responsibility of the job must weigh heavily but it also graces the entrusted person and concentrates a good mind. New Zealand has been well served by the men in the office so far. The next governor should be another New Zealander who knows this economy intimately, knows how it suffered under inflation and shares the nation's sense of where it needs to go.