Luxon's statement is hardly a vote of confidence in Orr.
But it follows what in reality has been a lengthy insurgency in Wellington.
Central bank purists have been making it pretty clear via resignations, sotto voce comments and leaks to news media — and some open broadsides — that they have difficulty squaring Orr's all-encompassing leadership of the Reserve Bank with its prime role of setting monetary policy.
In effect, they believe Orr should have kept the Reserve Bank in its lane rather than expanding its remit by embracing te ao Māori (the Māori world view), climate change issues and financial inclusion.
So it's no surprise that when the report co-authored by New Zealand Initiative senior fellow Bryce Wilkinson and former Reserve Bank governor Graeme Wheeler — titled How central bank mistakes after 2019 led to inflation — landed, news media quickly read it as an attack on the bank and on Orr himself.
As the NZ Initiative's executive director Oliver Hartwich later explained, their paper's main focus was "not even on the Reserve Bank but on the actions of the US Federal Reserve, the European Central Bank and the Bank of England. Though domestic media coverage may have suggested the primary target was the Reserve Bank, it was not."
But insiders — and political journalists — know well that depersonalisation is sometimes used to mask what are in fact highly personal attacks. So it is somewhat surprising that a well-versed pro like Hartwich did not foresee this.
Certainly, Orr read it that way himself when he responded through a press statement to say "as governor of the Reserve Bank and chair of the monetary policy committee, I acknowledge that consumer price inflation is at 7.3 per cent, above the remit target range of 1-3 per cent".
"I also acknowledge that the monetary policy committee's decisions over recent years have influenced this outcome.
"This acknowledgment is reflected in our regular monetary policy statements and through our ongoing efforts to quell excess demand in the economy."
Hartwich again: "The governor's highly personal statement and his (sort of) mea culpa for New Zealand's inflation, illustrates how closely monetary policy decisions are linked to personalities. Perhaps too much, one might say." This rather silky response will be read only one way by the governor.
Among the key points in the paper, central banks:
• Were too confident about their monetary policy framework
• Were too confident about their models
• Were too confident they could control output and employment
• Lost their focus on price stability and took on too many mandates
• Faced conflicts in some cases with conflicting "dual mandate" objectives
• And were distracted by extraneous political objectives, such as climate change.
The NZ Initiative, through many papers and statements since 2019, has been raising concerns over how the Reserve Bank has responded to the pandemic. There has been foresight — not just the hindsight that Finance Minister Grant Robertson has accused the think tank of applying now that high inflation is here.
Robertson also issued a statement, saying "The Reserve Bank does have my confidence".
But the brute reality is that it suits the politicians to have the governor in the firing line at such times rather than them.
Since early 2020, we have been in the midst of a global medical emergency caused by a virus that continues to mutate.
Now the so-called "necessary policy response" to contain the pandemic's economic impact is being questioned.
In New Zealand, the upshot was a "wealth effect" caused by all that loose money the Reserve Bank pumped into the banks being shovelled out to fuel a house price boom.
The upshot is that many people are now feeling a poverty effect — especially those facing rocketing mortgage interest rates — as house prices slowly retreat. Worldwide inflation is on the rise and the "cost of living crisis" is a refrain heard around the world, not just in New Zealand.
Now the central bankers' boiler-plate response to the pandemic is being criticised. There is a great deal of butt-covering by central bankers and finance ministers as the screws are tightened.
It's well past time that an inquiry into the pandemic and the economic response was launched and the issues comprehensively thrashed out.
