In a clear and unprecedented display of a lack of confidence in the independence and competence of the Reserve Bank, the Opposition says they're shocked and appalled by the reappointment of Adrian Orr as Governor for a second full five-year term that won't expire until March 2028, potentially including at least one term of a National-ACT Government.
Opposition Leader Christopher Luxon and Finance Spokeswoman Nicola Willis say reappointing Orr without doing a truly independent review of his actions in 2020 and 2021 is a "serious mistake."
"In recent years, Adrian Orr as the Chair of the Monetary Policy Committee signed off on an extraordinary programme of money printing and cheap lending that pumped tens of billions of dollars into the economy," Willis says in a statement.
"That programme directly contributed to house prices rising 28% in one year, inflation rising to a 32-year high, and record bank profits. New Zealanders now suffering through a cost of living crisis are owed some answers. Was a more careful monetary policy approach warranted? Has the Bank fulfilled its mandate? Did Orr get it wrong?," she says.
“The Government’s refusal to even ask these questions shows contempt for the New Zealand public. It’s not enough for the Minister of Finance to lean on the endorsement of the board he helped appoint. He should have kicked-off a thorough external review to satisfy himself and New Zealanders that the Bank did the best it could have. Instead, he has directly shied away from any semblance of accountability. The ‘ask no questions’ approach is unacceptable."
Willis and Luxon later told reporters in Parliament that if elected in a year's time, they will immediately launch an independent inquiry into the bank's actions, including whether they inflated bank profits. They rejected the legitimacy of an internally sponsored review due on Thursday, including peer review by international experts.
"It's absolutely hypocritical for Jacinda Ardern and Robertson not to have an independent review of the Reserve Bank and monetary policy actions that have contributed to large bank profits. They are actually marking their own homework at this point," Luxon says.
Focus on Funding for Lending Programme
Willis says bank profits would be considered as part of the review.
"I would immediately inquire into the impact monetary policy decision making has had, how much has that money printing added to the bottom line for banks? How much have they benefited from really cheap lending? And how much of that is being passed on? ," Willis says.
"It's extraordinary. The Funding for Lending Programme means that banks are still accessing really cheap, cheap cash. And I think New Zealanders who are paying very high interest rates or are worried about paying very high interest rates would be right to ask is that the right thing to be done," she says.
Challenged on whether the Opposition was endangering the perception the Reserve Bank was independent with such virulent criticism, Luxon says: "We've been very conscious of our responsibilities here. That's why for months, we've been telegraphing our concerns by saying please do an independent review. We've got questions, New Zealanders have questions, please get them answered. Properly review them."
Willis says the internal review was unacceptable.
Asked if she would accept the review, she says: "No, we don't think that is independent as the bank has handpicked its own people to do that. It's been done by staff at the Reserve Bank. How fair is it to say to staff at the Reserve Bank: 'Hey, did your boss do a good job? Of course, they're going to have to say yes."
'Your favourite teacher marking your exams'
Challenged on the peer reviews from non-Reserve Bank staff, Australian academic Warwick McKibbin and former Bank of Canada Deputy Governor Lawrence Schembri, Willis also rejected that, saying:
"It's a bit like saying to someone, look, you mark your own homework, and then pick your favorite teacher to tell you whether or not you've done a good job. And we think a more robust approach is necessary," she says.
"There's been extraordinary decision making. And the past couple of years, the Reserve Bank printed 10s of billions of dollars, had a lending programme that made money virtually free for the commercial banks. And all we're saying is, don't you think you should take a look at whether the right decisions have been made here? And Grant Robertson's answers? Nope, I'm perfectly happy. Well, he may be perfectly happy with the cost of living crisis, massive unsustainable house price inflation and record profit making by the banks, but we're not."
'Should have been just a one-year extension'
Luxon also criticised the Government's decision to reappoint for five years, rather than one year.
"I don't agree with what Grant Robertson has done today in appointing a Reserve Bank governor for a period of five years, when the convention was well established under Bill English that you extend someone for a year, and then let a new government decide whether they have confidence or not in the Reserve Bank," Luxon says.
"We're quite shocked by it to be honest with you, because our view has been very clear and Nicola expressed that. I thought incredibly well in her letter to Grant Robertson saying, Hey, listen, we think it's appropriate that you follow convention, which would be to appoint for a year, and so we can get through the election period of time," he says.
"The bigger issue is the government is not taking accountability or responsibility for its actions that has created the environment where banks have been able to make large profits. And that's why we say we need an independent review. We wanted that review before the appointment of Adrian Orr because we actually think there was monetary policy decisions, government spending decisions that have contributed to an environment where there has been massive asset price inflation, and banks have made big profits."
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