‘Just wrong’ - Reserve Bank Governor Adrian Orr hits back at U-turn criticism

Reserve Bank Governor Adrian Orr. Photo / Mark Mitchell

By Anan Zaki of RNZ

Reserve Bank Governor Adrian Orr has hit out at comments claiming the central bank has done a complete U-turn from its May forecasts.

On Wednesday, the Reserve Bank reduced the cash rate for the first time in four years and noticeably cooled the interest rate outlook, with further cuts expected.

It marked a departure from the bank’s May statement, when it raised the possibility of further hikes.

The so-called “flip-flop” drew criticism from Infometrics chief economist Brad Olsen and some in the mortgage sector.

At Thursday’s Finance and Expenditure Select Committee hearing, Orr was not keen on entertaining the comments when asked by chairman Stuart Smith.

“I can’t give air time to that comment,” Orr told the committee.

“You might not like it, but it’s still a comment,” Smith responded.

Orr was not finished.

“No, well it’s just wrong, that’s why [I won’t comment]. So I won’t bother,” he said.

“There’s no U-turn. I will quote [the bank’s July comments]: ‘The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures’,” Orr said.

“If people can’t understand what that means, I’m not sure if they should be commentating,” he concluded.

Brad Olsen, chief executive and principal economist at Infometrics. Photo / Mark Mitchell

Earlier, Reserve Bank chief economist Paul Conway said economic conditions had changed since May and the central bank was looking at the data available.

“Activity is just a lot weaker now than what we were thinking back then, and it hasn’t shown up in the GDP data, for example, because it’s lagged,” he said.

Gross domestic product data (GDP), a broad measure of economic growth, was published months after the economic period had finished. For example, the data for the three months ended March was published in June.

Conway said the Reserve Bank looked at more frequent indicators, such as monthly manufacturing and services sector data.

“When we look across a whole range of those high-frequency indicators ... when you look across all of them, they’re currently painting a very consistent picture of a weaker economy,” Conway said.

-RNZ