Former MPC member Peter Harris says employment hasn’t been removed from the RBNZ’s mandate and the committee is still required to target a ‘soft landing’

Peter Harris has just retired from the Reserve Bank’s Monetary Policy Committee (MPC), having served as an external member since it first formed five years ago. 

He has some advice for future members: don’t take advice from former members. 

“I know it sounds flippant but it is serious,” he says. 

“The whole idea of turnover is to bring fresh eyes and an open mind to deliberations; so don’t clutter that with baggage from the past”. 

Harris is the first former external MPC member to ever exist. He was appointed to the first committee alongside Bob Buckle and Caroline Saunders in 2019 but his term has now ended.

Saunders will follow suit at the end of June and Buckle one year later.

Across the street from where Harris is drinking his coffee, the MPC is inside the Reserve Bank meeting without him for the first time. 

Finance Minister Nicola Willis has tasked economic consultant Carl Hansen with being that fresh set of eyes on the RBNZ’s forecasts and policy decisions. 

Harris said his term should’ve ended in 2021 but the expiry date coincided with the departure of two internal Reserve Bank members of the committee: Geoff Bascand and Yuong Ha.

Grant Robertson, who was Finance Minister at the time, opted to reappoint Buckle for a full term and Harris for another 18-months to ensure continuity following the Covid crisis.

This extension expired two weeks before Election Day and so Harris had to stay on the committee through the summer until the new Government could choose a replacement.

And so, his term finally ended on Monday this week; five years to the day after it started. 

Plague, pestilence, war 

During those five years, most of the Four Horsemen of the Apocalypse rode into town one by one; only Death was staved off in New Zealand. 

Covid-19 was plague and pestilence, which caused supply shortages we could call famine, and Russia’s invasion of Ukraine was the literal war.

Harris was one of seven voices deciding how to shift the Official Cash Rate and implement a Large Scale Asset Purchase programme of New Zealand government bonds, in response to these events — with mixed results.

A second Great Depression was avoided, but inflation was ignited and is yet to be quelled.

The Reserve Bank’s official position is that monetary policy decisions were appropriate based on the information available at the time, although not necessarily correct in hindsight.

Harris still has some limitations on how much he can discuss even though he is off the committee, but he spoke about the “enormity” of the economic forces they faced. 

“Who would have thought of a lockdown of that extent, of that duration? Who would have thought of a fiscal stimulus that big, that quick?” 

“So, we just had to roll with these very, very heavy punches,” he said. 

Remit hasn’t changed 

Harris worked for a decade as the Council of Trade Union’s chief economist and has been closely connected to the Labour movement and party throughout his life. 

Robertson’s 2019 press release announcing the inaugural committee was headlined: “Expertise on Reserve Bank committee means strong focus on economy and jobs”. 

Labour and New Zealand First had just expanded the Reserve Bank’s mandate to include a requirement to support maximum sustainable employment earlier that year. 

The first law passed by the National-led coalition in 2023 reversed this decision and supposedly returned the central bank to a ‘single mandate’.

But Harris said on Thursday that the change didn’t remove the employment target, only downgraded it. 

The full remit still requires the MPC to “avoid unnecessary instability” in output, employment, interest rates, and the exchange rate.

“If you look at the remits, old and new, in their entirety and try to put in lay language — the task is to control inflation but avoid a hard economic landing, and that is still the remit”. 

An employment target was still in the remit but was now a rate of change, instead of maximum sustainable level. Harris felt this could be an even tougher test for the committee, in certain circumstances. 

“Even if employment was above its maximum sustainable level, you could still argue that you still need to avoid unnecessary instability in the rate of change,” Harris said.

“Obviously, what is unnecessary is subjective”.

In the 1980s, Harris was a strident critic of the Reserve Bank which he felt only controlled inflation by crashing the economy. 

“I used to use the euphemism that they dropped it in Cook Strait while trying to land at Wellington Airport”.

The world is more conscious now that monetary policy takes place within a socio-political economic context and can have a “devastating” impact on communities. 

Committee by design

Harris said the committee worked well and was much better than having a single decision maker, as it forced more transparency around the policy risks and considerations. 

While RBNZ staff made up a majority on the committee, there wasn’t any evidence they were teaming up to push through a particular view and side line external members. 

“All of the 10 people who've been on that committee have accepted it's collegial, but come there with individual views and perspectives,” he said. 

The committee has only held a vote on a final policy decision once, as the near two week policy process has been designed to reach consensus if possible.  

“You have a lot of time to moderate differences and to talk through differences of risk and come to something that most members, if not all members, can live with”.

This was different to some other central banks, where committee members arrived at relatively short meetings with predetermined views and quickly held votes.

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