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."
115 Comments
Agreed, I've taken this as a personal responsibility to discuss this with my family and peers, people need to understand the level of incompetence and corruption being shown within the so called leaders of our country. Time for NZ to stand up and say when enough is enough
Quite right.
Should have left it alone at 8.25% as it was. Perhaps then we wouldn't be in this mess.
(A variable proportion of any interest rate is there to quantify perceived Risk. Did Risk increase or decrease with the onset of the GFC? I'll suggest it increased. That's why place such as Australia put interest rates UP when it hit, not artificially lowered them as we all subsequently did.)
Orr raced into dropping the OCR in 2020 and look where that led (unintended consequences). Now he is blindly pushing the OCR up at each and every review and by quite bold increments. Again, I believe this is happening without the RBNZ fully realising just what the consequences of those hikes will be on business and consumers. Surely even Orr should see that it is time to go easy on these OCR rises. Take a breather and see where inflation actually goes otherwise inflation becomes a self-fulfilling prophecy.
I worked for Unilever over 25 years, knew Luxon when he started out as a Marketing grad.
A company where failure wasn't an option. No matter what circumstances changed, the annual business plan had to be delivered & every year operational savings had to exceed inflationary inputs including staff costs. Orr would have had nowhere to hide.
Well, that and indexing. A bit naughty to leave that bit out given the government seems to it should be able to make huge incidental gains from taxpayers, but investors shouldn't.
But who knows, this is fairly sophisticated criticism from National (as opposed to just bluster) and perhaps there is some nuance developing. Who knows, they may surprise us both and tell the Property Investors Federation to take a running jump. One can only hope.
That programme directly contributed to house prices rising 28% in one year
These points make sense, but it is difficult to get past the hypocrisy here - Luxon and Willis themselves want all the "hurdles" from housing investments gone and see house prices on the up again.
Low interest rates AND prices that didn't go up by 40% in one year?
Nah, that can't be right. By your standards you should be worshipping them as gods.
You know, assuming that this is actually genuine and not just extreme whataboutism discarding any and all context to avoid talking about the shitshow we're in now, from a government that's been in power for five years.
Amen to that. It was a lack of coordination monetary and fiscal policy that got us in to the mess. RBNZ (and the commercial banks) expected a massive recession and moved accordingly; RBNZ juiced the lending market with cheap cash and the removal of restrictions, and the commercial banks started hoarding cash (by widening the gap between lending and savings rates). Then the Govt came in hard with huge fiscal support - preventing the recession that the banks expected. RBNZ were guilty of not changing tack quickly enough. The commercial banks just did what you would expect - soaked up the windfall profits for their shareholders.
“The Government’s refusal to even ask these questions shows contempt for the New Zealand public.
Are they not the chips off the same block....Orr.......Arden...Robertsone and for that matter even Luxon
The Age of Credibility for Central Banks Is Over - Bloomberg
Inflation blunders have destroyed the trust that’s anchored the global financial system since the end of the gold standard.
https://www.bloomberg.com/news/articles/2022-06-23/inflation-responses-…
1) Removing LVRs. This allowed and encouraged housing market speculation.
2) Promoting interest only "relief" and mortgage "holidays", including for rentals and holiday homes, during the pandemic. This encouraged speculation and made people think property was a one way bet.
3) FLP.
4) The 50 basis points "shock and Orr" OCR cut before the pandemic, which encouraged speculation.
5) Keeping the OCR too low for too long... and ignoring the risks of inflation.
6) Telling everyone that negative rates and "lower for longer" rates were on the cards. This again encouraged and fired up housing market speculation.
I could go on, but really can't be bothered. Orr pumped the heck out of the housing bubble. He pulled in billions of dollars worth of fresh blood for the banks. He helped to make many new debt slaves for the banks.
How can people not see this? Orr is the bank's main man. Their chief drug pusher. Their most profitable asset.
2023 will present a big test of the RBNZ’s independence.
I think by May annual inflation will be down to around 4%. Unemployment would have risen ever so slightly. Thus, there will not be a compelling reason to start cutting interest rates based on the RBNZ’s mandates.
But high interest rates are not good for the government in election year.
Hence if the OCR starts being cut, from June or July, there will be every reason to be skeptical of the RBNZ’s independence.
Also a lot of this damage is due to the low rates from Wheeler and Bollard who were appointed by National. Had international inflation picked up under their watch a few years ago the outcome would have been the same. In fact Orr has been quite aggressive with his rate rises so it could have been worse.
Australia has been suggesting a review of the RBA- primarily as the feeling is they too may have waited too long to raise rates.
However the RBA is a high performing highly disciplined Reserve Bank who has a board that is diverse and includes board members from retail, social services, construction as well as recognised economists and statisticians - unlike the RBNZ board - which former RBNZ official Geof Mortlock described perfectly today - composition of the board of directors needs to change to bring in people with requisite skills, knowledge and experience, not the odd bunch of people they’ve got there right now.
I suspect any enquiry into the RBA will show they did the right thing under the circumstances but will recommend changes that they will implement and thats where the comparison to the RBNZ will end - for Orr there will be no enquiry and as such no opportunity for improvement,
It pains me to say this, but I'll probably be voting Labour next year, regardless. Despite their incompetence, they seem to have relatively good intentions - as politicians go. And as intentions go, aren't good intentions the best we can hope for?
National's intentions are pretty clear. Their policies will favour the landlords, the rich and probably all of Luxton's buddies. Whenever they say something that sounds nice, I wish I could trust them even a little. But no, I don't.
... based on " good intentions " , you should vote Greens ... their's are the best : " Saving the planet " ... fantastic intentions , none better ...
How you translate good intentions into tangible results is another question ... 5 years of Labour has demonstrated abject failure at pretty much everything they've had a crack at ...
... carry on doing what's not working successfully ?
Seems a bit early to nail my colours to a mast given the election could be a full 12 months away, doesn't it? I have this pesky habit of looking into full policy sets before I commit to any one party. I wish I could just vote based on my favourite colour like some people do, that would make life much simpler.
Bit of a cop-out, isn't it, GV? Nobody has to nail any colours to any mast yet. I might very well change my tune further down the line depending on how this all plays out - no doubt much will be happening in the political space before the election. But I can still make an argument based on what I think at the moment.
Not really. The options are pretty craphouse at the moment. It will get easier to support National's tax package if they drop the bits that suck (leave alone or boost the 39% bracket and ditch the sop to property investors) but not seeing signs of that yet. Labour are more interested in expending political capital on make-work schemes for Wellington and co-governance, not stuff that will actually make life better for Kiwis or things they actually campaigned on. The Greens have an uneasy relationship with reality and TOP want to charge my grandmother rent for living in her own home.
I've left ACT to last and definitely least as there's no chance of me voting for them at all, despite the wins they've had and Brooke V being one of the star performers so far this term.
So from what I can see, no slam dunks, lots of needs improvement, few reasons to feel optimistic either.
I think as an aspiring FHBs you should be looking at who is promising meaningful retail banking reform. Who will start talking about non-recourse mortgages, maybe turning Kiwibank into a proper first-home lender or even trying to compete with banks by offering longer-term fixed loan periods like the US has. If that's the basis for your vote, then by all means, but demand something that will actually make life easier for you that isn't fiddling around the edges. We'll need that kind of change to make affordable homes affordable again and take back some of the power from the Australian-owned banks.
We'll see what the majority of voters agree In a year from now.
https://theplatform.page.link/8XKh4rzTPQmiqN7v7
I don’t know, they are the first party in a long time to help generate a significant correction in house prices (get rid of interest deductibility, ring fenced rents losses, increased bright line test, ban foreign buyers and probably the biggest one introduced the new credit lending rules which kicked off this house price slide with the help of increasing interest rates) which is not looking like stopping anytime soon. National are planning on reversing all those policies and ramp up immigration to stimulate house price growth again. Those that argue house prices surged during the pandemic years should look at the reserve bank not the government.
I'm with you, Albert. Prices did skyrocket under Labour, but to be fair, that was due to the interest rate cuts and just about every other country did the same and ended up with monstrous house prices too. At least Labour had the balls to then implement a multitude of policies to make housing more affordable, as they promised they would do. (Admittedly, they did this a bit late and after some bungling.)
They ended up in so much trouble due to the CCCFA, but it probably saved many buyers from making a huge, huge mistake. Not that I hear anyone thanking them for that now.
Without implementing properly land use policies, Labour, like every Govt. since 1997, ensured that prices would rise due to all the non-value added costs it causes, and ensured that when the top was reached, anything they did to try and correct it would cause a fall.
There is no example anywhere in the world where after allowing a Ponzi boom in house prices, a country has, without pain, caused prices to fall to a more affordable level.
There are only examples of jurisdictions where they did not allow it to happen in the first place so that no fall could occur.
It's not just interest rate cut. In modern economy price of money and quantity of money are different and both controlled by bank/authorities.
Cutting interest rate with an idea to help with mortgage payments can be coming considered a good idea - but writing down more and more mortgages?
Only justification on their side , they were warned so seriously of the pandemic that they wanted to give some wealth effect to people by increasing house prices??
What you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.
What you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.
First Officer William Murdoch had the very best of intentions in mind when he attempted a "port around" manoeuvre, yet through a combination of inefficient systems, lack of in-depth knowledge of the underlying mechanics, and overconfidence in faulty design, the RMS Titanic still sank.
P.S. Then again, if Luxon says he intends to increase inequity, pour fire on the housing market and make the richest richer, perhaps we can at least trust him on that?
There are two or three things on the following list I'd certainly like repealed, but most others certainly not. (And then there's number 12 - wait, what?!)
I couldn't agree more. The following headline is an epic slap through the face for everyone who owns only one or none houses:
Homes earning six times the typical Auckland household income
How on earth can this be tolerated? Yet now that things are finally improving for home buyers and workers, National promises to do all they can to turn the clock back to this reprehensible situation should we give them half a chance.
I think this govt showed the power and consequences of money creation - which National have been doing quietly without inflation ; but by low interest rate and high asset prices. Obviously this benefitted some people more than others .
But labour gave direct money handouts as well as house-price. The debt within the system was always going unsustainably up . isn't it ? in the last 2 decades ?
Central banks throughout the Western world have been doing this for decades.
Why else do they need to meet each year at Woods Hole other than to set strategies to reduce interest rates without the CPI being affected.
Look at how the CPI has been manipulated to keep it low so interest rates and asset prices can remain high.
Independent my ass.
We have been scammed big time.
And all the intelligent people here don't even see it and think it is left v right.
The only time the national anthem becomes relevant.
Someone help us.
“The welfare state has always been judged by its good intentions, rather than its bad results.”
I am very confused in my voting intentions. I harbour a lot of resentment towards Labour, and have some inclination to vote National to get rid of them. At the same time, I am aghast at the thought of perpetuating all the policy approaches that have got us in to this right old pickle, which the Nats would reinforce. Further, I am not convinced that the calibre of their MPs is any higher than Labour’s.
I might still vote TOP but it’s hard to get away from the fact that it feels like a wasted vote. It would certainly be a principled vote though, and call me old fashioned but I still think principles count for something.
I'd rather be punched in the face by National than stabbed in the back by Labour. With Team Blue at least you know what you are getting into, and you can try to respond accordingly.
Labour dangle that little bit of hope, and then twist the dagger between the shoulder blades at every turn (case in point, reappointing The Tree Whisperer today)
This is not an endorsement of either party, if that much wasn't clear.
I agree fully with the need for an independant review. But some nuances are required:
1. Mr Orr should never have dropped the OCR so far because the domestic inflation was all those years between 2 and 4% (See the work of Mary Jo Vergara from Kiwibank). Yes, imported inflation was negative but we don't have any control on that. So an outcome could be:allways set the OCR on domestic inflation only.
2. He should exercise his QE by buying the Government Bonds straight from The Treasury and not through the secondary market. This left the banks with a pile of cash and we all know that the (only) expertise of the New Zealand banks is morgage lending.
He should exercise his QE by buying the Government Bonds straight from The Treasury and not through the secondary market..
I thought RBNZ has done that.. buying directly from treasury.. somewhere I read thats most obvious act of money printing . Also in Australia RBA didn't do this direct deal, they bought from open market after paying extra fee which was criticized there .
Correct me if I'm wrong. Thanks
It is unbelievable that Grant Robertson has appointed Adrian Orr for another 5 years. NZ has suffered enough from poor decision making by Orr & Robertson. Between them they have made the banks rich & New Zealanders much poorer.
Today the government has been trying to divert attention by criticising the massive profits banks have earned over this last financial year but they are at fault because Robertson set up the rules for the Reserve Bank.
Excessive government spending over the last 2 years has also contributed significantly to bank profits.
The reality is that the Reserve Bank under Orr’s leadership has allowed banks to get access to so much cheap money through its Funding For Lending (FLP) programme where banks can lend at the OCR.
The reserve bank's money-printing programme has now cost taxpayers $9.49 billion. That's the amount, covered by a government indemnity, that the Reserve Bank of New Zealand (RBNZ) has lost on its large-scale asset purchase (LSAP) programme as at 30 Sep 22.
On 15 Nov 21, I commented on interest.co.nz, “Fantastic for the Aussi owned NZ banks. RBNZ lend at 0.5%. NZ banks earn 4% on a 2 year loan. Best game in town. Profit sent back to Australia. NZ banking system is just subsidising Australia & NZ becomes a lot poorer because of this incompetence.”
In July 2021, previous RBNZ chair, Arthur Grimes warned that NZ was heading for a well-being disaster & said NZ government needs to ditch the maximum sustainable employment target when setting the OCR as this has created excessive house price inflation.
https://www.newstalkzb.co.nz/on-air/heather-du-plessis-allan-drive/audi…
Maximising sustainable employment has been a complete failure & is the fault of Robertson for introducing it in 2017. The Reserve Bank has taken its eye off the ball by keeping OCR too low for too long in order to keep unemployment low but let inflation get away. Now the Reserve Bank says unemployment is too low & is not sustainable.
NZ like Britain is a nation that now runs what are known as “twin deficits” — that is, NZ imports more than it exports ($27 billion for year ending 30 Jun 22 or $5k per person) and our government borrowed $9.7 billion to keep our country functioning (ie for year ending 30 Jun 22).
An independent inquiry is now needed to show how poorly Grant Robertson & Adrian Orr have carried out their respective roles. Without them NZ would be in a much better place to weather the storm that is now hitting NZ.
I disagee Bernard. The Bank has never been more independent. The Government has allowed it to do things that have cost the taxpayer and economy dearly with absolute impunity. The Bank is a case study of the need for checks and balances and what goes wrong when those checks are not properly enforced.
There is a long history of the opposition parties attacking the RB - witness the various monetary policy reviews over the years. But nothing really changes.
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