“Bullshit” - this is how former Reserve Bank (RBNZ) board member Chris Eichbaum is characterising the narrative authorities gave the public around how people were appointed to one of the most powerful committees in the country, responsible for keeping inflation in check.
The Treasury, in June, told the Herald that contrary to what had previously been reported, monetary policy researchers were in fact allowed to join the Monetary Policy Committee (MPC) when it was created in 2019.
The MPC is responsible for using tools like the official cash rate (OCR) to meet its inflation and employment targets. It is made up of four RBNZ staff and three external part-timers, appointed by the Finance Minister on the recommendation of the RBNZ board.
Finance Minister Grant Robertson claimed a 2019 Treasury report, which said a “strict approach” should be taken to excluding researchers from joining the committee due to concerns around conflicts of interest, simply included some “over-zealous language”.
Documents released under the Official Information Act (OIA) suggest Robertson’s comment stemmed from RBNZ board chair Neil Quigley.
A Treasury manager in March wrote to the secretary of the Treasury, explaining Quigley had just informed her the RBNZ board and the minister never agreed to exclude researchers and he was unaware that a 2019 Treasury report said they had.
“It sounds like there was an unfortunate miscommunication where comments about one particular candidate were interpreted to apply to candidates more generally in a way that was not intended,” the manager said.
Nonetheless, Eichbaum said the Treasury report was accurate and conflicts of interest were front of mind for the RBNZ board in 2019.
“I’m very clear on the fact that it was a concern,” he said.
“It was a risk, and the way of managing that risk was to err on the side of saying ‘No, we won’t appoint people whose day jobs involve the very activities that the MPC is involved with’.”
Spin, confusion and scepticism
Some in the economic community (including former RBNZ Governor Don Brash and former senior staff John McDermott and Michael Reddell) voiced their concern in media reports in 2019 and 2022 over researchers with expertise in monetary policy being disqualified from joining the MPC in 2019.
Their fears have become more acute, as inflation has soared under the MPC’s watch.
Emails released under the OIA show managers at both the Treasury and RBNZ were puzzled, if not concerned about the exclusion.
The reporter is fishing for a fresh angle, I reckon, so best not to throw any chum in the water just now.
Staff were also sensitive about the public perception of the approach, which the RBNZ’s general counsel believed was “organic and undocumented”.
When asked about it by interest.co.nz in February 2022, the RBNZ’s general counsel emailed its communication person, saying he should “downplay” the policy as a “consideration”, rather than refer to it as a “criterion”, “given the bank has been heavily criticised about this”.
The communications person emailed the general counsel, saying: “The reporter is fishing for a fresh angle, I reckon, so best not to throw any chum in the water just now.”
Come June 2023, when a recruitment process for external MPC members got under way again, the RBNZ went out of its way to publicly say researchers would be considered.
When the Herald asked the Treasury, RBNZ and Finance Minister’s office why there had been a change of approach, staffers struggled to figure out what happened.
One sent an internal email, saying she wasn’t confident in what she’d been told about there being an “error” in the 2019 report.
Someone else recommended cutting a line from the draft statement prepared for the Herald - which said an error in the report didn’t have a bearing on who was appointed - because they worried this “may be hard to prove”.
The contested line ended up being included in the statement.
A nuanced explanation
Eichbaum said this was nonsense, and the 2019 report prepared for Robertson was accurate.
Specifically, the report said: “As you previously agreed with the board, a strict approach has been taken regarding conflicts of interest.
“This has included excluding from consideration any individuals who are engaged in, or likely to engage in future, in active research on monetary policy or macroeconomics.
“In future appointments to the MPC, looser criteria could be adopted that would allow for a broader field of potential nominees from the board, if desired.”
Eichbaum questioned “why the hell” Quigley didn’t simply say: “That was then, this is now. Things have changed.”
He explained the RBNZ board took a cautious approach in 2019, as the MPC was just being established. Previously the RBNZ Governor was responsible for setting monetary policy.
One of the external MPC members appointed has a macroeconomics background (Bob Buckle), another is an expert in labour market economics (Peter Harris) and another in agricultural economics (Caroline Saunders).
Eichbaum said it was important external members adhered to the principles of “confidentiality” and “unanimity”.
The board wanted members to robustly debate issues among themselves, but ultimately own the decision taken by the committee.
Eichbaum said the board favoured “non-combative”, “non-adversarial” applicants, to ensure the MPC was functional.
“We were aiming for something that was robustly collegial,” he said.
Contrary to what critics of Quigley say, Eichbaum believed it wasn’t a matter of appointing “yes people” to the MPC. Rather, the board didn’t want members to go out and publicly discuss different members’ positions, as this would risk confusing the market and ultimately hampering the transmission of monetary policy.
For example, in the current high inflation environment, it would be counterproductive if a vocal MPC member published research that wrongly gave the market the impression the RBNZ was thinking about cutting the OCR.
Eichbaum accepted the current RBNZ board might not be as risk-averse as the old board was.
“The environment is different. A lot of learning has gone on,” he concluded.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in Government and Reserve Bank policymaking, economics and banking.