Reserve Bank Governor Adrian Orr says his easing bias will provide the new Monetary Policy Committee with a starting point to make its first OCR decision in May

Reserve Bank Governor Adrian Orr is quashing any murmurs he took liberty in Wednesday’s Official Cash Rate (OCR) review being the last one he was solely responsible for, before the responsibly is shared by a committee.

He shocked markets when he struck an acutely more dovish tone than expected by saying the more likely direction of the next OCR move would be down.

While Orr’s decision marked the 16th consecutive one made by him and his predecessors to leave the OCR at 1.75%, his commentary veered off the script he largely stuck to in previous statements.

Speaking in Wellington on Friday morning, Orr noted that as of April 1, he will hand the reins over to a seven-member Monetary Policy Committee, which he’ll chair.

“People might wonder if that is why I did something the other day,” he said, referring to the Wednesday decision.

“Is that my last swing of the bat? No.

“We will be operating through a committee. That committee will be made up of seven people – four from within the Bank, three externals, and we will be working together to harness a diverse range of opinions.”

Asked by an audience member whether he expected his newly announced easing bias to be the starting point for discussions to be had by the committee, or whether the slate would be wiped clean, Orr said: “It’s the starting point.

“I imagine that the opening speech will be very similar to when you’re watching an episode with a week apart, where you’re reminded, ‘Previously, last week, this happened…’

“It’s still the same targets, it’s still the same information set. Nothing here has changed.”

'Inclusive' and 'open-minded' 

Orr didn’t provide any additional information around how the committee would operate that isn’t already in the public domain.

Rather he addressed, on a higher level, the need for the RBNZ to evolve with the world.

He said societal expectations had changed and transparency was required to have legitimacy.

Orr mentioned “inclusion” a lot – particularly in light of the RBNZ now being required under law to meet employment, as well as inflation targets.  

“Unemployment is low at the moment, but it always remains and will remain one of the largest single challenges to social inclusion, economic inclusion. People who aren’t included go off into some very, very dark and unhealthy spaces…

“In a sense we’re joining a much wider group of central banks with dual mandates and we’re doing it because we’ve been afforded to do it through low and stable inflation.”

Orr said we should never assume inflation will remain low and stable, even though it has in recent years.

While the first phase of the Reserve Bank Act has seen the introduction of the Monetary Policy Committee and employment target, the second phase will look at the RBNZ’s remit more broadly.

Recognising this, Orr said: “The challenge for us looking forward is now far more nuanced…

“Does the remit of the Reserve Bank reflect the objectives that are most important to the welfare of our society? I can put that in plural – every central bank in the world is asking this question of themselves.

“And do we have the requisite toolsets? And are we being given too many targets with too few tools, or too much expectation?...

“Are central banks using their influence in inclusive and transparent ways?”

With another round of consultation on the second phase of the Reserve Bank Act due to open in the middle of the year, Orr encouraged more people to make submissions.

He stressed his open-mindedness, particularly on another review underway around the level of capital banks are required to hold.

Orr recognised he had been criticised for having already made up his mind that he was going on push on with the Bank's proposal to require banks to hold a lot of capital by international standards. He said this wasn't the case and noted the consultation process was still underway.