There is still an air of mystery surrounding the shock resignation of Reserve Bank Governor Adrian Orr, even after a very brief press conference with the central bank board Chairman.
Chairman Neil Quigley told reporters the resignation was “just a personal decision” Orr had made, and there weren’t any policy, conduct, or performance issues driving it.
But the timing of his abrupt resignation makes this hard to believe. The Governor was scheduled to give opening remarks at the bank’s monetary policy conference at 9:30am on Thursday morning.
Speaking at the February Monetary Policy Statement press briefing, Orr said the event would be two days of “cut and thrust excitement” featuring ex-Federal Reserve Chairman Ben Bernanke and the Bank of England's Catherine Mann — except now he won’t be there.
Quigley said he didn’t want to lay out the exact timeline, but that it had been under discussion for a few days. Finance Minister Nicola Willis was told once it was clear Orr would resign.
Deputy Governor Christian Hawkesby officially took over as acting-Governor at midday on Wednesday, and Orr has taken annual leave until his official end date on March 31.
Quigley said it didn’t make sense for a Governor to have a “grey period” where they had decided to step down but continued in the role short-term. This is not the regular process, although Don Brash did resign abruptly when he was invited to run for the National Party.
However, it doesn't appear there was any such urgency in Orr’s decision. The way Quiqley puts it suggests he simply decided over the weekend he didn’t want to come into work anymore.
There is no reason he couldn’t have given some notice, or waited until a more convenient time to resign. It seems likely there's something more to the story, and there are many options.
First, there is the possibility it is to do with a health concern. Quiqley was asked this question and said he couldn’t comment. How much should we read into that?
Writing on the wall
But an equally likely reason may be political. Quiqley said the Board was working through “issues” with the Government on policy and funding issues, but nothing in those discussions had triggered the resignation.
It is no secret that Willis and many of her colleagues have criticised Orr and may welcome his resignation. Prior to the election there was even speculation about whether a right-leaning government could force him to leave.
When asked about this in 2023, Orr said he had no plans to step down if there was a change in government and that he would complete his five-year term.
But there were levers that could be pulled. Some proposed an independent review of the bank’s decision making, which could be critical of Orr and hopefully trigger his resignation.
Besides that, the next opportunity to exert pressure on the Governor would be in 2025 when the central bank had to negotiate its next funding agreement with the Government.
The Reserve Bank operates under a five-year funding agreement with the Government, which sets a maximum spending limit negotiated with the Finance Minister. The central bank then has financial independence, as it sources that money itself and chooses how it is spent.
Willis has signalled that the spending limit will be lowered. It was important the bank was well resourced for its core functions but it shouldn’t have extra money for “pet projects,” she said.
One former Reserve Bank employee speculated this may be the reason for Orr’s departure, noting his announcement specifically referenced funding for the future of cash project, financial inclusion, climate change, and Māori access to capital.
“There is much work left to do on the major multi-year strategies RBNZ is following. Ongoing focus and funding will be critical to these projects’ success,” Orr said in the statement.
That specific mention of funding was deliberate. But Quiqley categorically denied an allegation that the bank might be given a better deal if Orr wasn’t in charge.
Capital fight brewing
Bank regulatory capital requirements are another political fight waiting to happen. Orr and his deputy have implemented strict regulations which require banks to carry enough capital to survive a 1-in-200 year crisis.
Some commentators, and parties with vested interests, have said the conservative capital rules are a barrier to competition and have contributed to the big banks' high profits. There has been a growing chorus of voices calling for them to be loosened, but the Reserve Bank has been unwilling to back down.
Did Orr see those two political fights brewing and decide he lacked the political capital to win them? We can only speculate, but it’s unlikely he resigned for no reason.
The good news is that nobody has ever died wondering what Adrian Orr thought. He’s opinionated, outspoken, and unlikely to disappear from public life forever.
As for his legacy, that will take time to develop. Contemporary critics will say he showed poor leadership, ignited inflation, and weakened transparency.
However, the history books will also say that he successfully got pandemic-induced inflation back under control and oversaw substantial institutional reforms which modernised the Reserve Bank.
11 Comments
Independent...to a degree.
I think he could handle losing budget, but I think interference in capital requirements was a step to far for him.
I can see his point, how can he be regulating banks if such an important thing is set politically, expect capital requirements for agricultural lending to drop soon.
"But an equally likely reason may be political." Very mild. More But an equally very likely reason is political.
Willis et al must know about the huge increase in staff over the last 3 odd years and put the screws on him.
"financial inclusion, climate change, and Māori access to capital." good riddance.
"Bank regulatory capital requirements are another political fight waiting to happen" That's serious and I'm all for higher capital requirements. Let the govt stand guarantor for TSB and the like with high punishment for directors and CEO if the bank goes belly up, excluding overseas catastrophes.
Like Bollard before him, educated to have no clue.
As will be his replacement.
I'm guessing this lot want to re-start the housing ponzi, and need slacker regs. It won't work this time, as global events should tell them, but I guess they don't have any other songs in their playbook.
I think I'll disagree with you on this one PDK. He may have been educated to have no clue as you say but I doubt he had no clue. If anything he seems to have wanted to move the system towards a better outcome, stricter regulation of the banks and climate change considerations.
If you look at the things he appeared to be pushing for, you can see he recognised some of the issues and was at least trying to push things in the right direction. He was still working within a constrained system and his mandate was narrow. I don't know if you've ever tried to change an institution from the inside but the toll is immense. Hopefully next guy picks up the baton and goes with it rather than kowtow to the current reprobates.
Good comment Ag. He was a breath of fresh air after Bollard but his sense of humour faded fairly quickly and that in itself is a sign of the pressure he was under. One man with a skinny stick fighting both the politicians and the establishment to change a system that favours big money over the people. Potentially dangerous but perhaps the RBNZ should not be independent, but rather in instrument of the government?
"Potentially dangerous but perhaps the RBNZ should not be independent, but rather in instrument of the government?"
We've been there, done that. Nothing "potentially" about it.
Funding 'what'? An empire in areas beyond his remit?
He had to go.
"oversaw substantial institutional reforms which modernised the Reserve Bank."
Would be interested to know what was actually achieved. FWIU, the RBNZ is woefully backwards on tech frameworks and data collection. All they seemed to do to tackle this was hire more people without any discernable outcomes.
Yeah, that's pretty much how the game works. Central banks are officially independent, but in reality, they almost always operate in alignment with the government of the day. The Large-Scale Asset Purchase (LSAP) program was effectively a way to finance government spending through money printing—something that politicians would never admit outright.
The idea that a central bank governor could outright refuse to facilitate a government’s economic agenda is mostly a fantasy. When the government needed funding for pandemic-era stimulus and other spending, the Reserve Bank of New Zealand (RBNZ) obliged by creating $50 billion out of thin air to buy government bonds, lowering borrowing costs and making it easier for the Labour government to spend big. Now, with a new government in power, they get to bring in their own person—likely someone who will align with their fiscal policies, just as Orr aligned with Labour's.
The "independent central bank" narrative is useful because it lets politicians deflect blame. Labour can say, "Inflation wasn’t our fault, it was the RBNZ’s monetary policy!" Meanwhile, National can now install someone who will adjust policy to suit their needs while still claiming, "We respect the independence of the Reserve Bank!" It's a great way for both parties to avoid responsibility for inflation, even though excessive government spending and central bank money printing go hand in hand.
This isn’t unique to New Zealand either—most central banks function the same way. They provide the liquidity needed to keep government spending rolling, and when inflation or other economic problems arise, the governor is the convenient fall guy. It’s a cycle: print money to fund government priorities, blame the central bank for the consequences, swap in a new governor when politically convenient, and repeat.
Perhaps Orr has given up in despair of a world gone mad where 3 'strong men' are in the process of dividing the world up between themselves?
In that scenario what is the central bank of a small trading nation to do?
Orr has resigned so he can be groomed in time to be Luxon's replacement at the inevitable 'roll'..
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