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Orr’s debut on target

New Reserve Bank governor Adrian Orr stamped his own mark on how the central bank will operate under his tenure. Miriam Bell reviews the new-look approach.

Challenges lie ahead for the Reserve Bank, the bank’s new Governor, Adrian Orr, confirmed in his first MPS press conference. But, unpredictable global risks aside, the main challenges that Orr highlighted related to the working of the bank itself.

He emphasised a need to improve the Reserve Bank’s communication so that it reaches, and is understood by, a broader audience than “a few retail bank economists. He pointed to the new PTA and challenges around measuring and understanding employment outcomes. Finally, he mentioned the new monetary policy committee decision making structure and the need to ensure it remained consistent and successful.

This seems to highlight the new Governor’s plans to bring greater clarity and transparency to the Reserve Bank and its messages. It is, perhaps, a move by Orr to make his mark on the Reserve Bank and illustrate how things will be run differently.

Orr’s official OCR announcement and MPS statement were greeted with enthusiasm by economists this morning. They praised the improved structure of the statement and the more accessible messages. ASB’s chief economist, Nick Tuffley, described them as an “Orrsome start”.

The press conference which followed was run on similar principles. There was a noticeably more open and inclusive atmosphere. Orr elaborated on issues which the former Governor Graeme Wheeler tended to be taciturn on. Asked about constraints on the housing sector, for example, Orr talked about issues such as a “lack of affordable land” and “resource constraints”.

The new Governor didn’t really deviate from the Reserve Bank’s standard line around inflation, house prices, household debt levels, and global risks. Further, he thanked his predecessors for leaving the economy in a “cyclical sweet spot” – adding he could not imagine a better place to start from as Governor.

Orr may be a better, livelier communicator than past Governors. But, as BNZ head of research Stephen Toplis has noted, he is “at his core, a relatively mainstream economist who has already committed himself to price stability with a focus on the mid-point of the Reserve Bank’s target band”.

That means that a significant change in monetary policy is unlikely. And this morning’s press conference provided confirmation of that.

Orr kept the OCR on hold and maintained a neutral bias – although he did signal it could go either up or down in future. But he also said the country was in a solid economic place with strong employment and low, stable inflation and, therefore, the OCR was likely to be on hold for a considerable period of time.

One noticeable point of difference for both the new Governor and the broader Reserve Bank is the new PTA. In line with the PTA’s new employment objective, there was much talk of labour force participation rates, wage pressures and the measurement of employment outcomes.

Not surprisingly, given the fallout from the Australian Royal Commission proceedings, Orr also ventured into the territory of bank culture and conduct. Here he emphasised the Reserve Bank expects New Zealand banks (even if overseas owned) to perform to New Zealand directives and standards. 

The new Governor’s debut performance was viewed positively by most commentators – although independent economist Michael Reddell felt there was a big gap when it came to questions around meeting inflation targets.

But, for most economists, Orr’s focus on getting clear messages out to people won the day. The new Governor himself returned to this theme persistently during the conference. At one point, he said a recent Reserve Bank survey showed that most journalists didn’t think much of the bank while a majority of the public didn’t even know what it is.

That’s not a good thing when trying to raise financial literacy and make people think harder about important things like the soundness and efficiency of the financial system, he said. Today’s MPS and conference clearly shows that tackling that challenge will be key to the new Governor’s agenda.

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