Ahead of the election, National pledged to commission an independent inquiry into the RBNZ’s performance during the pandemic.
It accused the Government of making a “serious mistake” by not doing so before reappointing Orr governor for another five years from March 2023.
In November last year, it said it would “immediately” initiate an inquiry into the RBNZ’s contribution to the cost-of-living crisis, unsustainable house price rises, co-ordination with fiscal policy, losses on bond purchases and its contribution to bank profits.
National likened a review the RBNZ did of itself, which was externally peer reviewed, to marking its own homework.
Nonetheless, an independent inquiry doesn’t appear to be a priority for the new Government, as it isn’t part of its 100-day plan.
Top of its to-do list is making the RBNZ’s Monetary Policy Committee target inflation alone, rather than inflation and employment.
Luxon said a bill to remove the RBNZ’s “maximum sustainable employment” target would be the first piece of legislation his Government would introduce to Parliament.
He said that during his conversations with Orr on Tuesday, he was pleased to hear the governor’s “obsession” with lowering inflation.
The RBNZ surprised financial markets on Wednesday by pencilling in an Official Cash Rate (OCR) hike for next year.
Rather than suggest the OCR could fall below where it is now (at 5.5 per cent) next year, the RBNZ only saw this happening in the second half of 2025.
Some of its Monetary Policy Committee members were of the view “there should be a low tolerance for any increase in the time to return inflation to target”.
Orr recognised the RBNZ was leaning against banks cutting interest rates before its inflation fight was done.
While swap rates jumped after the RBNZ published its statement, the extent to which financial markets continue to respond to the RBNZ’s signals is yet to be seen.
The RBNZ didn’t comment on the impact it believed the new Government’s policies would have on inflation.
“There are so many unknowns out there… It’s just too early to be able to say,” Orr said, explaining the RBNZ would wait for policies to be confirmed and formally incorporated into the Treasury’s forecasts before passing judgment.
Nonetheless, he was concerned high levels of immigration, coupled with a slowdown in home building, could put upward pressure on rents and house prices, worsening inflation.
“We’ve put the flag up here, that it is domestic inflation that’s causing the challenge and a big component of that is dwelling costs,” Orr said.
The RBNZ recognised government spending – specifically increased investment in infrastructure – continued to support economic demand.
Luxon assured the Government would help the RBNZ lower inflation by reducing public sector spending, including on consultants and contractors.
While the Government’s 100-day plan doesn’t put a target on this, Luxon stood by the 6.5 per cent average he campaigned on cutting public sector spending by.
He also said the Government’s commitment to stopping fair pay agreements (which support collective bargaining by employees) would lower costs faced by businesses, meanwhile allowing all businesses (not just small ones) to put new employees on 90-day trials would create more flexibility in the labour market.
The commitment Act got from its coalition partners to consider requiring the RBNZ to meet its inflation target in a specific timeframe, rather than in the “medium term”, didn’t make it into the 100-day plan.
Nor did Act’s idea to investigate improving accountability by getting rid of the Monetary Policy Committee, and once again leaving monetary policy decisions in the hands of the governor.
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.
