National Party Finance spokesperson Simon Bridges is softening his criticism of Reserve Bank (RBNZ) Governor Adrian Orr, after earlier saying he wouldn't reappoint Orr if he was in government.
Bridges' change of tone came as National leader Christopher Luxon on Tuesday morning said Bridges’ comment didn’t reflect the party’s position.
"What Simon was raising was, fundamentally there has been mission creep with the RBNZ,” Luxon said, echoing the view of the likes of the right-wing think tank, the NZ Initiative, which is partially funded by the country’s major retail banks.
“We don't want it to get politicised because we don't want to undermine the independence and the trust that it has both with the government and the public.”
Bridges grabbed headlines on Monday after last week telling The Working Group podcast he wouldn’t reappoint Orr. Orr’s term as governor ends in March 2023, so it will be up to Finance Minister Grant Robertson to either reappoint or replace him.
ACT leader David Seymour, who also appeared on the podcast, said there was “not a chance” he would keep Orr.
Then Bridges said, “It’s a big call to get rid of someone who’s been reappointed. In terms of reappointment, I’m with David. I don’t see anyone on the centre-right being that quick to want to do that, because this is a guy who’s ultimately probably made things worse.
“His policy implementation has led to the housing problems we’ve got, the big inflation. And he’s been focussed on a whole bunch of other things that may or may not be important, but these are not the job of the Reserve Bank, whether it’s Māori issues, climate change and the like.”
Quizzed by interest.co.nz on his comments on Tuesday, Bridges retreated from his attack on Orr, and focussed on the mission creep angle.
“In the end, there’s merit in sticking to your knitting. It’s not all Adrian Orr’s fault actually, it’s also the fault of Grant Robertson - giving the RBNZ too much to do," Bridges said.
He then said he felt for Orr, because he had to hike interest rates to suppress higher inflation (which the RBNZ specifically set out to lift by loosening monetary policy).
“In fairness to Adrian Orr, I have some sympathy for the guy,” Bridges said.
“He’s got to turn things down because Grant Robertson’s turning things up with that spending, leading to inflation; poorer kiwis. So that OCR [Official Cash Rate] keeps having to go up and up and up.”
This is the argument Bridges' predecessor, Andrew Bayly, had been making, all the while calling for the Government to provide struggling businesses with more financial support.
Bridges couldn’t identify any problematic actions the RBNZ has taken as it’s fulfilled its core jobs.
Asked whether he was happy with the way the RBNZ has conducted monetary policy and its role maintaining financial stability, Bridges said, “On monetary, I think overall - yes. You can [debate] whether it was slow or so on and so forth...
“In the other areas, it’s a case-by-case example. But I would say that politicians have a legitimate role to play in actually critiquing and questioning the non-monetary parts of the RBNZ.”
When pushed on exactly what he would’ve done differently if he was in Orr’s shoes, Seymour conceded he would’ve raised the OCR sooner than the RBNZ did on October 6.
“I would’ve wanted to have a RBNZ governor who took a much more hawkish approach towards monetary policy than we’ve had," he said.
Seymour said Orr’s attitude that people who can’t afford houses should be grateful they have jobs, was creating “huge division” in New Zealand.
Robertson, as recently as a couple of weeks ago, expressed confidence in Orr, saying, “I think the Governor’s done an excellent job through very, very challenging times."
54 Comments
I think Adrian Orr cops a bit too much flak, I actually don't mind the guy. The problems we're facing today are systemic, not the result of any one person's decision making.
Even changing the whole political leadership hasn't changed anything since 2017, despite promises to the contrary. Our issues run much deeper than that.
Correct, but if we had capital gains tax on property but not on shares, say, we'd be talking about our stock market bubble right now instead of our property one.
It's a multifaceted problem. Low interest rates mean easy money, but they don't tell anyone how to spend it.
Sorry, not buying it. His remit has always included financial stability and now a massive chunk of our future discretionary income is committed to offshore banks for the next few decades. He's painted us into a corner where prices either rise more or interest rates increase and we have so little money getting spent we end up with stagflation. How is that 'preserving financial stability'?
You're still too focused on housing. For what it's worth, I think interest rates should have been raised a long time ago, to levels much higher than where they are now. That would have minimised our housing bubble, but it probably would have resulted in a "necession" (necessary recession) instead. People would then be criticising Orr for moving too far too fast, as they sit in their relatively affordable homes with no food on the table.
He's caught between the devil and the deep blue sea. Four decades of financial liberalisation and deregulation has resulted in major global economic instability, which is currently manifesting itself in different ways in different places. In New Zealand, because of our particular circumstances, it happens to be manifesting itself in the housing market, but this is just one symptom of a much larger underlying problem. It's about much more than just interest rates.
Given we have inflation running massively over the PTA, interest rates about to dampen discretionary spending during a recovery phase for the economy AND an overheated housing market, what part of The RBNZ's mandate is he actually getting right? If this is success, I'd hate to see what people consider failure.
This comment only makes sense in a world in which other real asset's values don't become similarly inflated when the risk free rate falls. Which is obviously not the case to anyone with a basic understanding of how financial markets operate.
In saying that however, lowering interest rates has exacerbated our housing issues. By making money more available, the quantity of money that can flow into housing increases. Note that removing LVRs temporarily like the RBNZ did at the start of covid also has this impact.
Think about it this way. You know there's a systemic shortage of housing in NZ and this shortage is likely to get worse over time due to a past and present failure of local and central governments to perform one of their core functions (provision of infrastructure, more generally enabling sufficient supply of housing to meet demand). You know further there's tax advantages in owning housing and overexposure to housing means the RBNZ and Govt will try and protect your investment. Knowing all this, you decide your rational response is to borrow as much money as you possibly can as quickly as you can and invest it in housing.
Yet you can only borrow $1m.
What do you do? Buy a house, maybe two depending on where you buy.
Then Orr drops rates and removes LVRs. Now you can borrow $2m. Yay! More houses!
Essentially, the impact of interest rates falling is to enable greater exploitation of the present and known problem. But note that interest rates falling isn't the key issue. It's just the fuel on the fire.
This is the podcast [The Working Group] the above article refers to:
https://youtu.be/QptbKY8A6uI?t=1548
The video starts at 26mins, Martyn Bradbury [interviewer] is if nothing else.. highly entertaining.
I think National thought he was going to be Edrogan crazy. Ends up he isn't quite that, but wasn't far off.
Read this not very old speech again and remember that just after this, both GR and Orr did everything they could to pump up house prices (i.e. do the opposite of what GR said he wants).
I think Bridges nailed it here:
"“His policy implementation has led to the housing problems we’ve got, the big inflation. And he’s been focussed on a whole bunch of other things that may or may not be important, but these are not the job of the Reserve Bank, whether it’s Māori issues, climate change and the like.”
Adrian Orr , in my view, has shown a lack of knowledge, wisdom and understanding....
Hindsight and History will surely show his lack of nous..?
The bubble runs a bit deeper than Orr and the Covid period. When your career is based on the dogma, you shouldn't really expect any different.
One of the problems with 'too big to fail' bubbles is that the cost of doing business and prices of non-property goods and services need to be high accordingly (remember the stories of $10 cups of coffee in Tokyo as far back as the 80s?). That's the kind of practical story that would be interesting to hear from the Gnats or any politician in general. You can't have an uber-bubble and affordable goods / services simultaneously. It's illogical.
Very interesting, thanks. Exploring how the cause and effect relationships might work in this would be equally so. People at the bottom demanding more because so much has been given to those at the top, followed by inflation of non-property goods and services? Or in other ways?
Agree Roelof, but he doesn't go far enough. Bridges makes no comment about the Government's failure in this. As others have said it is not just the RBNZ, but the Government too. But then he wouldn't want the Nats to be committed to doing something that might actually work then would he?
Not removed, really. Some were temporarily paused without being undone, e.g. imported population increases. And supply takes time to catch up.
Moreover, monetary and stimulus policy took over in the changed circumstances to ensure the change would not result in falling prices. Not a straight comparison at all between having those three things and not having them.
The Nats haven't been in power for over four years. This reflex 'National bad' rather than accept any criticism of the current regime is tedious and not fooling anyone. Unfortunately, it's all that Labour lackeys have. They bought into something that wasn't real and aren't adults enough to admit they got hoodwinked. But as long as the National Party are the bad guys, they can keep feeling smug about something - which is more important than actually solving problems like child poverty, housing or infrastructure issues.
I did not vote for Labour but I do recall that Nick Smith was still blaming the ongoing housing crisis on Labour in 2016, as were his lackies. This is universal.
Whether it was they couldn't admit they were wrong or just didn't want to acknowledge underperformance...only they know.
Yes, it is universal, but this doesn't change the fact that Labour proposed an unworkable state building program, used it as a platform to attack National for years for not doing something similar and then completely walked away from it with almost zero media scrutiny - it was spun as Ardern decisively taking control, not the electoral bait and switch of the century.
I can remember the third term of the National government featuring almost daily missives from John Campbell on RNZ about poor people stuck in motels and unaffordable housing, savaging National ministers for not coming on the program. Where is that level of scrutiny, I wonder, with houses now 50% more expensive and 3x as many people on waiting lists?
Crickets.
"What Simon was raising was, fundamentally, there has been mission creep with the RBNZ,” Luxon said.
Really? I'd have thought Bridges' words: "this is a guy who’s ultimately probably made things worse. His policy implementation has led to the housing problems...." was more than just mission creep!
Bridges learning the new job on the flay, clearly.
But yeah, interesting this:
This is the argument Bridges' predecessor, Andrew Bayly, had been making, all the while calling for the Government to provide struggling businesses with more financial support.
Don't spend. Oh, but spend. Oh, not on them just on my friends.
Some thoughts:
3.4% unemployment rate vs 5.2% in Aus.
30% - 40% house price inflation posing a risk to the overall economy, which they have to consider as part of their financial stability mandate.
Core inflation above 3%
A decade of anaemic wage growth in Australia, with the Reserve bank governor stating he will not raise rates until wage growth gets above 3%.
Even Orr's boss is being criticized all over ....
https://www.bloomberg.com/news/videos/2021-12-06/fed-has-already-shot-a…
Reserve banks are losing their relevance and in trying to solve one problem have created ten more.
Bridges at the time was in a very differen't situation & mind set, hes now feeding of the entrails of an apex preditor Luxon.
Not even the RBNZ can predict this disfunctional market, Orr's decisions reflects this and its having a very serious affect on a growing number of mid to lower Kiwis lives, he's accountable for this.
Banks, Property owners & those associated have exploited the crises & benefitted, but if the situation reverses it could crash, forced to return to sound economic fundamentals after 20 years of living on credit exasperated by covid.
At a time when National are bleeding support to ACT, Bridges "follows the lead" of the ACT leader.
Good to see that Luxton has more political nous than Bridges. Can't see Simon remaining in that shadow portfolio for long unless he starts accepting he needs to "zip it" until he finds out what his leader's opinion is on such important matters.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.