RBNZ chief has sipped Government Kool Aid but must hoe his own row.


Life is getting a little weird under this Government. One evening last week the Reserve Bank put on a reception in Auckland, as it does every year, and this was the first chance for many of us to get a reading of its new Governor, Adrian Orr.

He is the first of the governors of the monetarist era to look and talk more like a bank economist than a banker. That is to say, a bit dishevelled, a beer from the bottle guy who delivers his economic analysis in that gruff, casual, almost careless way of Kiwis who don't want to sound clever.

All of that we knew from his days as chief economist at the National Bank and later at the Reserve Bank. What I didn't know since his appointment by the new Government was how much he has drunk the Kool Aid.


He gave the gathering a primer on the bank's role in the economy role by way of a stretched analogy with a tree. Not just any tree, Tāne Mahuta. He invoked the earth mother, Papatūānuku, and sky father, Ranginui, who needed to be separated to let the sunshine in. That task had fallen to Tāne Mahuta, the god of the forest, and he said the Reserve Bank's task was much the same.

Not much sun was shining in for me at that point but he went on to explain a central bank was the like the trunk of the great kauri financial system, money was its sap and some of the branches were so big they could not be allowed to fail ... It was there I began to wonder if he'd grabbed the wrong speech notes. This would have been ideal for a primary school.

His audience, many of them in finance, knew exactly what the Reserve Bank does. They're accustomed to governors giving a dry and dusty summation of the state of the national and international economies and the outlook for inflation, interest rates and growth in the year ahead. Orr got around to that in his own way.

Nobody is more important to New Zealand's wellbeing than the Governor of the Reserve Bank. The job is more important than the Prime Minister's in so far as the Governor has the power to protect the currency against inflation, often resulting from the temptations of people in elected positions to spend too much or tax too little.

That is not entirely to the liking of today's Labour Party, some of whom are too young to remember inflation. They came to power hell-bent on blurring the bank's focus on low inflation by giving it a second target, full employment, and dissolving the Governor's ultimate responsibility in a committee.

The bank will have four chairs at the table and the three lay members of the committee will be named soon. Expect diversity.

In practice, not much need change. Monetary policy has reflected a consensus of bank officials and employment has always been in their equation.

Orr will have been in the role for a year next month. He has been saying from the day he arrived, and said again the other night, that the economy is in a "sweet spot" of low inflation, low unemployment, steady growth and low interest rates which he doesn't expect to increase this year or next. So he doesn't understand why business confidence remains low and investment is not higher.

The forest giant Tāne Mahuta. Photo / File
The forest giant Tāne Mahuta. Photo / File

I don't think a bullish Governor does much for business confidence, not until business is confident he will wallop inflation if it appears. Right now there has to be some risk from rapid increases in the minimum wage and the public sector pay claims.

I worry too about the Governor's forays into the "culture and conduct" of trading banks and life insurance companies. In tandem with Rob Everett, chief executive of the Financial Markets Authority, Orr initiated inquiries along the lines of the royal commission in Australia.

Like the commission, they found unspecified institutions guilty of unspecified acts that amounted to paying agents to sell their products rather than serve the interests of customers.

Since when were those intentions regarded as mutually exclusive? Since the change of government.

The parties now in power represent a lot people think every commercial transaction involves a seller gaining at the buyer's expense. The fact that voluntary trade happens only when both sides see benefit is beyond their ken since most of them have never sold something for a living.

Orr and Everett understand commerce so why are they demanding banks and insurance companies stop paying sales incentives? Customers are not fools.


Tāne Mahuta is at risk these days from a disease that moves in mysterious ways and saps the vitality from the kings of our forest. I hope the new Governor can rise above it.