Opposition Leader Christopher Luxon has thrown any reappointment of Reserve Bank Governor Adrian Orr for a second five-year term into doubt, saying he wanted a full independent review of the Reserve Bank's performance during 2020 and 2021 before Orr was reappointed a few months before next year's election.
Luxon would not say if he would call on Finance Minister Grant Robertson not to reappoint Orr, given the five-year term would begin just months before a potential change of Government, but repeatedly said he wanted an independent review of the 'wave of cash' produced by the Reserve Bank first.
Luxon's predecessor (bar one) Simon Bridges said last year he didn't want Orr reappointed just months before the so-called caretaker period when sitting governments usually don't appoint people to statutory and/or independent roles that a new government would inherit.
However Robertson has rejected the call for an inquiry, saying one had only just been completed (before Covid) and Luxon's criticisms showed him to be 'Captain Hindsight.'
Luxon called for a public inquiry into "the extent to which a tidal wave of cash poured on the New Zealand economy caused the current cost of living crisis," in a statement on Tuesday.
“The Reserve Bank and the Government took unprecedented steps in 2020 and 2021 to pump money into the financial system. The massive and ongoing monetary and fiscal response unleashed a tidal wave of cash into New Zealand’s economy," Luxon said.
“The Government should initiate an independent public inquiry into the Reserve Bank’s monetary policy response from March 2020 until late 2021, to better understand the lasting impact of key decisions, the length of stimulus and any lessons that can be learned for the future," he said.
“It’s not credible for the Reserve Bank, nor the Government’s own agencies, to lead a review. National respects the independence of the Reserve Bank and seeks to uphold that independence. That must not stop us evaluating the performance of the Bank on behalf of the New Zealanders we serve."
Luxon referred to criticism of the Reserve Bank and other central banks in a joint report by former Reserve Bank Governor Graeme Wheeler and NZ Initiative fellow Bryce Wilkinson.
“New Zealanders deserve an independent appraisal of the decision-making during this extraordinary time. Households struggling through a cost of living crisis need assurance that economic decision makers are doing everything possible to prevent a repeat. Quite simply, could the worst of today’s inflation hangover have been avoided and if so, how can we stop it happening again?"
Luxon called for the terms of reference of such an inquiry to be drafted by parties across Parliament.
His call followed the announcement last week of an independent review of the Reserve Bank of Australia by the new Labor Government there. The Reserve Bank is conducting its own five-year review of its monetary policy remit, which it is required to do under new legislation. A review of the Reserve Bank was conducted before the passing of new legislation in 2018, which formalised the addition of a requirement to support full employment alongside targeting inflation around 2% and created a formal Monetary Policy Committee for making monetary policy decisions.
“A key question will be the roles the Finance Minister and the Treasury took in both facilitating the Reserve Bank response and co-ordinating with it. The inquiry should be time-bound, to ensure public scrutiny of its outcomes prior to the appointment process for the Reserve Bank Governor, which is required ahead of the end of Adrian Orr’s current term in March next year," Luxon said.
'Money printing and the effect on house prices'
Later, speaking at a news conference, Luxon declined to answer directly if he would protest to Robertston to stop the reappointment of Orr for a second term from March 27, 2023, if Robertson did not order an independent inquiry. On current political opinion polling, Luxon is a good chance to win government in an election late next year.
He passed the question over to Finance Spokeswoman Nicola Willis.
"We think the government has nothing to fear from an independent assessment of monetary policy decisions over the past two years," Willis said.
Asked about possible terms of reference, she said:
"Were interest rates kept low for too long? Was the programme of Large Scale Asset Purchases (LSAP) and the Funding for Lending programme, together with the low interest rates, were they over-stimulatory to the economy, when combined with unprecedented fiscal stimulus from Grant Robertson?
"What role did Grant Robertson play in signing off, for example, that LSAP programme, and was there proper coordination between the Reserve Bank and the government, both of whom were pumping the money hose at the same time, and New Zealanders now bearing the consequences of."
Willis said any inquiry should also look at the impact on house prices.
"New Zealand has to take lessons from the past two years, Kiwis are really hurting right now. Whether it's the price of groceries, childcare fees, petrol wages aren't keeping up, people are being crushed by inflation. Let's have a look at whether we got this right," she said.
Robertson still has confidence in Orr
Asked about the criticism by Wheeler and whether he would reappoint Orr, Robertson said he was still working with the board and could not give specifics, "but I will continue to say what I've said for some time, which is I have confidence in the Governor."
"Captain Hindsight, Mr Luxon, needs to remember what he and his party said in that period of time. Most New Zealanders supported the reasons that we had to intervene both at a fiscal and monetary policy," Robertson said.
"I don't think Mr. Luxon has any moral high ground on this. There will inevitably be space for us to look at all manner and aspects of the response. And I'm sure the Reserve Bank t will do its bit in there, but the point I'm making here is that I vividly remember calls from National Party to spend more money than we did supporting businesses," he said.
Asked if New Zealand should do what Labor Treasurer Jim Chalmers just announced (an independent review), Robertson said: "I just did that, and I don't think I'll put the Reserve Bank through that again."
Update - Reserve Bank responds to report
Late on Tuesday, Reserve Bank Governor Adrian Orr issued a statement saying the Reserve Bank, in addition to its five-yearly statutory review, "we are also reviewing our recent performance in conducting monetary policy, including the use of additional monetary policy tools."
"This monetary policy review will assess inflation and employment outcomes relative to the targets outlined in the Remit, and the decisions taken at various times based on the information available at the time, relative to other central banks, and relative to likely alternative economic outcomes if these decisions had not been taken," Orr said.
"The decisions of the Monetary Policy Committee are always made with the information at hand at the time. This information and the assumptions made at each decision point are outlined for all to view in our Monetary Policy Statements," he said.
Orr also rejected suggestions that climate change, Te Ao Māori, and financial inclusion, distracted the bank from monetary policty.
"I regret that the Committee – and society at large – has been confronted with the COVID-19 pandemic, and other recent events that have caused food and energy price spikes. We are a learning institution, and through the open process of the Remit review and the monetary policy review, we will be very clear on our lessons learnt as we forever seek to do a world class job for the people of New Zealand."
86 Comments
The inflation in NZ is mainly because the US has been printing the US dollars and flood the international markets. It got nothing to with NZ.
But no NZ economists or any economists from the West point out this obvious thing.
The problem is not RBNZ but it is how the US uses the Fed as an ATM to rob $$ from the world.
The root of the current inflation is supply and freight issues due to Covid, a high oil price and Covid fiscal stimulus that has made monetary policy effective. This is a worldwide trend and so the RBNZ has to act to preserve the $NZ at a rate that it thinks is suitable. The choice is between a low dollar that benefits exporters and helps keep New Zealand out of the Sri Lanka zone (the no foreign currency to buy imports zone) or a high dollar that benefits importers and helps keep the price of imports down.
How long have interest rates been low worldwide - a decade or more. How long has inflation been ramping up - for the last two years. What's the difference - Covid fiscal stimulus worldwide in the last two years.
Low interest rates (printing dollars) doesn't make for inflation if the middle and lower classes aren't spending the money. The lower and middle classes have been spending money these last two years in the Western world because their govt's gave it to them to spend. Now that's all stopped.
We are nearing the end of the lag period of the Covid fiscal spending. For here on in there is nothing to support inflation except the high oil price and supply and freight issues. If people can't spend then businesses can't pass on wage increases in the form of higher prices. Ergo the price increases stop and the firing begins.
China doesn't want to be the reserve currency of the world so it's the $US. If you have your mortgage loan in $US then that's the choice you made when you took out the loan. The $US goes up when risk goes up and investors flee to safety. If the dollars available for purchase on the international market are in demand then the price goes up. When $US dollar loan holders have to access more $US to service their loans then the demand for $US goes up.
The high $US is more a sign of worldwide stress and demand for safe assets. The US govt may have run a large deficit a year ago but now it reducing the deficit at a rapid pace. Perhaps too rapid for the dollar debt holders worldwide to handle.
I have to agree with Luxon that there should be a review. They should also review the impacts of property speculation, and taxation rules on the housing market. Perhaps National may then have second thoughts about reversing Labours changes, assuming that their priority is the cost of living crisis and controlling house prices?
Great idea Waikatohome
it would be a wonderful opportunity to comment about Nationals role in our business advocacy groups and lobbying. Might shine a bit of a spotlight and explain why our productive sector has been neglected but our speculative sector has boomed.
don’t know that Chris has thought this one through.
the problem isn’t that houses went up in value. The problem is they were already the most expensive in the world.and interest rate increases aren’t the problem….it’s the debt that’s the real problem.
god bless national.a bit lost.just pushing the message for the past
don’t know that Chris has thought this one through.
He's not stupid, but I don't think he really understands how the RBNZ-Govt-Commercial bank partnership works. Blind Freddy knows that credit is created in NZ by commercial banks and allocated to the housing bubble (bidding up prices of existing houses) based on their own risk ratios.
Huh, central bank accountability is a "message for the past"?
Sure, let's blindly keep thinking the people who got us into this mess can get us out of it, with no meaningful scrutiny over their actions or the dicking about with their mandate. That'll definitely work.
I fully agree with Chris Luxon that the RBNZ's actions should be reviewed. Both the money-printing actions of the past and now the stark OCR increases are harmful. The former inflated the housing bubble, the latter now creates hardship for homeowners who borrowed at low OCR.
Before we all start dragging Adrian Orr over the coals here, let's remember that the Government was entirely complicit in all of this.
It was the Government who issued the bonds which were purchased under the LSAP, and offered indemnity to the RBNZ for any losses incurred under the program (which have since materialised). It was the Government who pumped all the resulting cash into the economy, to try and disguise the negative effects of some of the world's harshest lockdowns. And it was the Government who decided to alter the RBNZ's remit for what one can only assume were reasons of political expediency, and are currently looking to bring the central bank even more under their direct control.
All this happened as a direct result of our COVID response, which is what really needs investigating here. If we simply focus our blame on one person, we solve nothing, and risk having the same thing happen again.
Dont you just kick yourself when your 3 kings get shot down by a full house when your playing poker . I see no point in having an enquiry or series of taxpayer funded meetings to determine what could of or should of been done last week ,last month, last year. Nice to think such would never have occurred under a purple government or a polka dot government but lets wake up and smell the coffee... We are exceptionally good at wasting money in this country. Councils are fantastic at spending ,Governments are fantastic at spending ...the problem is they spend what they havent yet got... Its like we are in the futures market....always predicting whats ahead whilst losing sight of where we are...folk need to stop and realise, theres a good reason the folk that know how to sort this mess out arent at the helm...its because they would be loathed and hated for restraining spending and ensuring the best value is attained . The best folk dont want to run the country...because they know, they would be run out of town...lol... Until the best people get bold...expect more of the same....
The RBNZ panicked when lowering the OCR and then turned a blind eye to the inflation it helped produce.
I just think we have incompetent people in important roles all over the political spectrum. Orr ,Jacinda, Robo, Goff....
There seems to be a real lack of expertise and common sense...
Was the bald one in Hawaii when interviewed?
Orr?
But this is reporting, at best. Because the problem is the whole growth/finance system, including everything Luxon understands.
What we need is journalism. https://consciousnessofsheep.co.uk/2022/07/24/in-brief-the-peak-of-the-…
'One reason is that politicians and central bankers always look backward (which is why, incidentally, none of them saw the 2008 crash coming either).'
interesting article from the Guardian in the UK this week.
Why can’t National be an enabling party for the aspirational rather than a protectionist party for the already wealthy?
Let me know when Morgan Godfrey musters the ability to hold the party in power with an absolute majority to anywhere near the same account that he wants to hold the opposition leader to. There's a number of things wrong in that article, the cherry-on-top is him quoting Clint Smith, basically regarded as a partisan joke in the NZ twitter space by almost everyone on all sides.
National has tied itself to the wealthy property investment and development class
Its supporters , donors and members are the property investors and developers (its the party of business, and business in NZ is houses). Even its MPs and 7-house-luxon are deeply invested. Thye have made promises they cant break so if it cuts support for the rich and housing ponzi it cuts off its own leader, members, supporters and donors.
Huge own goal.. they built the ponzi and now cant stop having policies of supporting it.. even if it means they cant get elected because such a small % of Nz doesnt want to break it up.
Labour will be laughing at them. They come across as greedy, old, elite, anti-climate change and anti change. Like Labour in the Uk they will lose an easy-win the election for being the most unelectable.
"They built the ponzi" For God's sake, look at prices from 2000 - 2008. This has been a multi-party, multi-governmental failure. The last 40% - 50% of house prices increases are squarely on Labour's shoulders. House prices statistically have been shown to increase faster under Labour than National. Yet we get ridiculous comments like "National built the ponzi" as if John Key personally invented homelessness, and all that happens is that people repeat this kind of crap and the Labour government of the day gets to pretend like things aren't rapidly getting worse under their watch.
Not wrong. However both parties are to blame. And right now the only one with any policies that might help is labour. At least they seem to recognise the issues now.
I am not keen on either party. But Luxon is coming across as pro housing and pro tax cuts for the rich. (1) he wont get in that way and (2) if he does its just more of the same.
My preference is a national that has a decent vision and policies - in the meantime to try to get either party to shift its view and bias in favor of a proper productive economy.
Yes you are correct. I am wrong i checked a graph and the biggest rises were not in Keys time. My bad i took several inputs and reached the wrong outcome it seems. My sincere apologies.
We do agree on national and labours urgent need to switch away from housing as primary investment in nz.
I'd say given the spikes in other living costs, the only fix to our current malaise is broad-scale tax reform. But our Finance Minister cynically calls letting people keep the inflationary-driven component of his earnings a 'tax cut' so I'm not holding much hope for the future.
Here’s a fb post from this morning
Here is an “investor” seeking advice. How common is this now?
” Hi. Family income is $150k annually and we bought our first home in 2018 in Christchurch and currently have around $350-$400k in equity, house value is $750-$800k. We still owe $400k to the bank.
Earlier this year, we invested in a turn key house in North Canterbury which will be ready by mid or end of 2023. We only paid 30k as deposit and the house price is coming at $690k. We feel like we are now overpaying for it. If the price goes further down by next year, is it a good idea to just let go that $30k. We can try to onsell it to minise the loss.
Also considering current high interest rates and difficult bank rules, it might be difficult to get the full loan of $665k on the property and we cannot afford to put anymore money in it. This is the first time I have tried investing and not confident. Your thoughts please. Thanks.
Seeing similar stories elsewhere, eg turnkey property in Auckland has bank valuation dropping $200,000 between initial contract and settlement and bank now wants to see the difference in cash before approving loan for contracted amount. Must say I’ve been compulsively hate-listening to ‘NZ’s number 1 property investment podcast’ for a few weeks now and I recon this is the perfect setup for ‘the full Irish’.
One of the attack lines at one point was trying to paint a conspiracy with one of the ministerial shareholdings for (I think) TRG being in the Minister's name, as if they were enriching themselves in potentially the most visible and stupid ways one could imagine - and that could be uncovered with a simple companies office search.
I note these types of holdings are now listed as 'Minister for XXX' but it was still a pathetic smear attempt.
actually no, removing interest deductbility and reduce tax, while in a higher interest environment, will enable business to run easily while reducing currency circulation.
you do not want to kill business when tightening money supply, or you will end up reducing productivity.
I think Luxon's concerns are genuine. I share his concerns. Yes, money printing has helped asset owners (in the short term). That said, the RBNZ's steep OCR rises now are outright destructive.
Looking from an inclusive perspective with regard to the whole country, the RBNZ's actions have caused a roller-coaster ride for house prices. The property increases have priced many renters out of the market. Now, the property falls are leading to hardship for those who bought recently, and renters still cannot buy due to the increased mortgage costs.
This does not help anyone. Both overcooked OCR swings were harmful - economic harm caused by our money-printing government in combination with the actions of the RBNZ.
I actually don't have much sympathy towards people who just bought recently. There were a lot of people (being labeled as "DGM") out here talked about housing price wont be always going up, interest rates wont stay low forever and if you bought the house at the wrong timing when its price has peaked, there will be risks of bankruptcy, financial hardship or losing your house, but they didn't listen. So if they've been warned and still went ahead, then they can not blame others for that.
Any investment involves risk, and if you buy it for yourself to enjoy, price going up or down shouldn't matter to you as that's the price you agreed upon, how much debt you are willing to borrow that's the choice you make. It's time for them to act like adults that are willing to take responsibilities instead of whining how hard it is and begging government or RBNZ to save them.
Chris Luxton has an impressive track record. He has proven himself in business, with much success. He is also a protector of unborn children.
https://en.wikipedia.org/wiki/Christopher_Luxon
This is far better than J. Ardern who has a track record of:
- ruling our country in the style of a fascist dictator, in particular persecuting those who wish to protect their health from experimental genetic manipulation (so-called "vaccines");
- money-printing and devaluing the purchase power of savers and salary earners;
- promoting abortions in an unprecedented manner, even outlawing peaceful and silent prayer in front of abortion clinics.
I support Luxton while vehemently opposing his stance on abortion, because I believe he has the integrity to maintain the separation church and state... and the sense to realize he has absolutely no chance in an election if there is even a sniff that he would do otherwise.
I can’t speak for others, but all I would say that I cannot trust *any* leader of the major parties given the track record of both Ardern and Key in breaking promises. Ardern having been worse than Key, but Key wasn’t great either as he reneged on a number of promises / commitments.
Trust is not based on scientific observations.
The track record of the incumbent and her predecessor in terms of trust is not great, nor has the recent history of the track record of global leaders been great.
What convinces you that Luxon will be trustworthy? That he will break the mould?
Further, he has said one or two things that raise questions around how trustworthy he might be.
I agree. Its not a fair comment. Luxon is actually really honest about his policies and seems very a moral chap. Its just that his policie and opinions are all about supporting expensive housing, making the wealthy wealthier and doesnt have a decent vision or strategy for nz that will help the masses at a time when that is what we need.
But he is very honest about it and can be trusted to do exqctly what he saya if people decide to elect him.. he will make most people poorer and nz housing ponzi bigger.
I actually think he would be an awesome leader but would need a 180 degree turn on policies and to sell off his and his wanna be MPs houses and read the room better... if he wants elected he needs to have a vision and set of poicies to tax wealthy more and to switcn nz investment away from housing... and like the uks wanna be PMs to switch export away from china not toward it.
Ps i support luxon call for a review of what happened. But prefer its wider looking at what the root causes of the big issues are.. local contribution to inflation, NZDdrop vs USD and accelerated housing bubble and its impact on society. Lets not try to steer it to focus on just the issues that suit national.
I have heard that Bridges retired because he thought Luxon's pro-speculator orientation was too much and was taking National in the wrong direction, that society had gone too far in already. Just water cooler talk from folk in the financial sector. Bridges may have developed some regard for Kiwi society of old.
Let's see if National can progress with their case against Orr's re-appointment.
The Opposition has kept a check on Labour's excessive PCs, housing gangstas in residential areas is an example.
Even Jacinda A is heckled, despite doing much. Mr Luxon will find that appeasing Freedom is an easier route to take.
Interesting article from Richard Prebble in the herald today.
Last time NZs inflation rate got this high, Interest rates had to be cranked up to 18 percent.
“We have forgotten how hard it is to get 7.3 per cent inflation under control. When Lamont made his famous statement, the Bank of England's interest rates reached 13.875 per cent. When Keating made his statement, the Reserve Bank of Australia's official cash rate peaked at 17.5 per cent.
In New Zealand, in order to tame inflation bank mortgage interest rates reached 18 per cent.
There is zero chance that an OCR of 2.5 per cent or even the predicted 4 per cent next year can stop 7.3 per cent inflation.
I read every comment so far and no one seems to have understood anything.
Two factors are critical.
1 an outgoing government has no right to saddle the incoming one with a governor or anyone .
2 No outgoing government has any right to commit the new government to its own policies.
Put simply all posts and contracts should be subject to ratification by the incoming National (local) government duly elected. All appointments should be fixed term to end 3 months after election day. All contracts must be subject to a clause that allows incoming governments the right to terminate them.
Basically 2020 was an election year, Orr was a political appointment, and he was under no illusions that his job was to make sure that Labour got re-elected hence the money splurge. The majority of the RBNZ Board are useless diversity hires who also know which master they serve.
And its not hindsight, David Seymour was correct from the beginning - this article was from Nov 2020. Its just a shame everyone was so focused on Jacinda Ardern's daily TV appearances that no-one listened to anyone else. https://www.nzherald.co.nz/business/acts-david-seymour-criticises-reser…
"Act Party leader David Seymour is accusing Reserve Bank Governor Adrian Orr of being a liability, saying his latest announcement harks back to the days of Robert Muldoon.
The Reserve Bank has announced a new lending programme - offering to pump another $28 billion into the economy over the next couple of years through cheap loans to banks.
Seymour said the country was monetising its debt, avoiding hard choices and instead giving itself artificially low-interest rates.
"Currently the Reserve Bank's irresponsible approach to liquidity of the New Zealand dollar is inflating asset bubbles, it is meaning a generation of young people watch the future get further away from them as a result and that is a recipe for political dissatisfaction and unrest," he said.
Seymour criticised Orr.
"It is time to identify the personality of the current Reserve Bank governor as a liability, because he is a risk taker, I think in his own mind a visionary and yet he is doing unconventional things that are actually quite perilous."
.I agree anyone who thinks The reserve bank is independent is dreaming. it really is time for a real debate on how this country is run. One thing is abundantly clear no political party can be trusted to be in power for more than 3 years. My personal view is that we need a vote on the ballot that none of the candidates listed is fit for office. Maybe that will bring out the disenfranchised voters to let the government and other politicians know what they think.
Clearly my use of capital N hit a nerve or two it should have been lower case.
So what do you propose?
we change the head of the of the reserve bank when a new government comes in? And also the head of the health ministry. Treasury too? Add in dept of conservation as well. Also change the head of education I guess.Defence, too?all the ministries or just the reserve bank cause you have to much debt?what is it.let us know
dunnock have you thought it through or dunknow?
So... how long do you want to keep flogging yourself about the effectiveness of the current set-up, given that the remits were changed by the government but then there also being next to no consequences for overshooting the target window by a factor of 200% or so? How's that working out for us? Because this is kind of what your moral high ground as built on and I gotta tell you, it sort of sucks.
There are calls for Reserve Bank reviews or inquiries about once every three years! I recall the FEC doing one a few years back. It is always a great smokescreen for avoiding the issues that matter such as a dysfunctional labour market; the absence of a coherent immigration policy, out of control government spending; a failed construction sector etc.
One thing worth to mention is that, the monetary policy contributed to the asset price inflation, but only partially responsible for the hiking inflation.
the current hike of inflation is caused mostly from the supply end, short of labour due to covid, and disruption in international supply chain.
based on this reason, I worry the current RBNZ is making yet another mistake by over tightening the monetary policy, which cause plenty of pain in the consumption end, while making the supply end issues even worse.
It's like when you have a hungry goose, and the master decide to feed even less to the goose. If this is what really happening, the goose will die.
Not sure you've ever been inside a corporation, but they rarelypromote on ability alone. The reason christians do so well in leadership is their operating system can manage denial of even the most rudimentary facts. Morale low, being out-performed by competitors, strategy flawed??? Just pretend everything is fine.
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