Today was Alan Bollard's last hurrah and he didn't disappoint.

He ended on a high note, which for a Reserve Bank Governor who hits his targets means a low note - low interest interest, low inflation and a strong financial system. The things he is not responsible for, the exchange rate, unemployment and foreign debt, have also ended on a high note, which ultimately are the marks of failure of New Zealand's economic and political policy makers. To be fair to him, he can't be solely blamed for those bad high notes.

Dr Bollard also ended with a proverb, of which he has been fond. It appeals to his dry and often self-deprecating sense of humour. "Wise men make proverbs and fools repeat them," he said to laughter from the assembled journalists and economists before paying tribute to their role in communicating the Reserve Bank's activities.

I hope he celebrates his last Monetary Policy Statement news conference and parliamentary select committee appearance. He deserves at least a strong cup of coffee from his favourite café, Daniel's, next door to the bank at the bottom of the Terrace. That's because Reserve Bank Governor Alan Bollard can retire on September 25 with his head held high.


He presided over monetary policy and New Zealand's financial system during the most turbulent period in our economic history since late 1984, when a run on our currency forced a shock devaluation and nearly bankrupted the nation.

Alan Bollard has managed the blunt instrument of the Official Cash Rate (OCR) and the much less simple instruments of banking regulation through New Zealand's strongest period of economic growth in 50 years and then its deepest and longest recession in 20 years.

During this period of extraordinary volatility punctuated by a housing boom and huge moves in the exchange rate, he broadly stuck to his mandated target of keeping consumer price inflation within his Policy Target Agreement of 1-3 per cent over the 10 years of his governorship.

He also regulated and managed New Zealand's banking system as it reacted to the near collapse of the global financial system in late 2008. Under his leadership (and despite a series of debilitating migraines he has talked about in his financial crisis book), Bollard had to deal with the imposition of a deposit guarantee scheme he did not want and the almost entire collapse of New Zealand's finance company sector.

The Reserve Bank acted decisively to fund New Zealand's 'Too Big To Fail' banks in late 2008 and early 2009 when they were cut off from international funding during the post-Lehman collapse freeze.

Simultaneously, Bollard slashed the OCR from 8.25 per cent to 2.5% in a frenzied nine months over late 2008 and early 2009, much faster and further than either expected or previously delivered.

This was his finest hour. New Zealand's banking system and economy coped much better than almost everywhere else in the developed world, at least in part to the Reserve Bank's decisive and often brave action in the face of critics (like me) and all sorts of precedents.

The last four years has cemented Dr Bollard's reputation as one of New Zealand's finest public servants.


The judgement on the previous six years is not so glorious. He did meet his inflation targets, but many argue he missed the significance of the biggest build up in foreign and housing debt in New Zealand's history. Some believe he held interest rates too low and for too long, particularly during 2006 when the housing market got a second wind.
Bollard himself in his final news conference acknowledged the bank could have used 'macro-prudential tools' such as loan to value ratio limits to control that housing boom.

Ultimately, this buildup of foreign debt and the associated surge of capital flows that pushed up the New Zealand dollar, is limiting the New Zealand economy. It unleashed a structural strengthening of the New Zealand dollar that has restructured the New Zealand economy towards importing, consuming and borrowing and away from the very things we need - producing, saving and exporting.

Dr Bollard stuck to his targets and kept the banking system stable and he delivered the best parables in the driest of styles. My favourites are his clever defence of not criticising other central banks: "One camel does not make fun of another camel's hump", and his explanation of how New Zealand's currency is affected by other central bank's
actions: "When elephants jostle, what gets hurt is the grass."

But in the end, the New Zealand economy is weaker, more indebted, more unbalanced and monetary policy will have to be redesigned to deal with that legacy.

Dr Bollard could have challenged that, and may yet do that in his retirement. But for now he deserves that coffee and another panadol.

Go well Alan.

Here's another African proverb to go out on: "The lion does not turn around when a small dog barks"