Prime Minister Christopher Luxon said he respects the independence of the Reserve Bank and his chats with Governor Christian Hawkesby before the bank sets the Official Cash Rate were not directions.
Speaking in Auckland this afternoon, Luxon said “we’ll air our views”, however the bank is “very data driven” with how it makes its cash rate decisions.
“We will share our respective observations and views on the economy,” Luxon said.
“I want to be under no illusions. I do not direct the Reserve Bank. Its independence is sacrosanct.”
Luxon’s remarks follow a controversy he sparked during his Monday broadcast media round in which he revealed he gives “reckons” and “views” to Hawkesby before the bank sets the Official Cash Rate (OCR).
Luxon confirmed he “pretty much” told the Bank the recovery was too slow and more monetary stimulus was required.
Speaking on the Mike Hosking Breakfast on Newstalk ZB, Luxon was asked whether the Bank should have cut the OCR further and faster.
“I meet with him once before any of those sort of announcements happen and I can often give my views in that case,” Luxon said.
He later said he gave his “reckons and perspective” to the Governor.
The remarks raise questions about the strictness of the Government’s adherence to the operational independence of the Reserve Bank in the realm of monetary policy.
The Government should typically not give a view to the Bank on its OCR decisions. Luxon was clear he did not actually direct Hawkesby to shift the dial one way or another.
Later in the interview, Luxon said he respected the bank’s independence.
Asked whether he agreed with Hosking that the bank should have eased monetary policy faster, Luxon said, “pretty much, so that’s fine. I can give my views but I respect the independence of the Reserve Bank, Mike, under legislation”.
Labour’s Finance spokeswoman Barbara Edmonds said Luxon was “walking a very fine line between his reckons being directions”.
Edmonds noted concerns Labour has over the fact the bank’s chair, Neil Quigley, is involved in the Waikato Medical School as vice-chancellor of the university, and the fact that the last Governor, Adrian Orr, resigned over a disagreement with Finance Minister Nicola Willis over the bank’s funding and the regulation of trading bank capital requirements.
“The Prime Minister’s latest comments pull into question the independence of the Reserve Bank. It’s not appropriate behaviour, the PM needs to stick to his knitting,” Edmonds said.
Central bank independence is a hot topic at the moment. It is generally viewed by economists as important because it means markets trust the bank to make decisions in the interests of the economy as a whole, rather than having their decisions dictated by the political fortunes of whoever is in power.
In the United States, President Donald Trump has been putting pressure on Federal Reserve chair Jerome Powell to cut rates further.
Hawkesby confirmed last week he is in the running to be the permanent replacement to Orr.
Hosking asked: “... why can’t you – I know why you can’t, but why don’t you, because you must be tempted – say, ‘what he really should have done was 50, when he didn’t do a damn thing, when he missed the whole economy going backwards, and that was his job then, and he’s not doing his job properly”.
Luxon replied: “I meet with him once before any of those sort of announcements happen and I can often give my views in that case...”
Hosking interjected, asking, “and do you?”.
“Yup,” Luxon replied.
“But that’s me giving my reckons and perspective,” Luxon said.
Luxon said it was interesting to see that two members of the Bank’s Monetary Policy Committee, which collectively make OCR decisions, voted for a 50bps cut.
“What was interesting was you would have seen they [the bank] published that two of the six – four voted for 25[bps] and two voted for 50[bps]."
Hosking then said: “But that doesn’t fix your problem because the economy has stalled because he’s not doing his part – or they’re not doing their part".
“I hear that frustration, I get that, he’s also got two more shots before Christmas,” Luxon said.
Hosking then asked whether Luxon agreed with him, appearing to refer to his comments about the bank’s caution about cutting rates.
“Personally, I do,” Luxon said.
“Is that what you told him in the meeting?” Hosking asked.
“Pretty much, so that’s fine. I can give my views but I respect the independence of the Reserve Bank, Mike, under legislation,” Luxon said.