The Reserve Bank’s Monetary Policy Committee (MPC) should meet more frequently to make interest rate decisions, Prime Minister Christopher Luxon said on Thursday.
He made the remarks after a speech on his Government’s economic growth plan during a Q&A session with former National Party colleague Simon Bridges.
“We've got to get ourselves out of the three year recession and into a steady pathway of economic growth that will continue to build as we go into 2026. We want to see interest rate reductions continue on the back of low inflation,” Luxon said.
“I've got to respect the independence of the Reserve Bank, but I think, frankly, if they met a little more regularly that would be helpful”.
Open for business
Staff at the Reserve Bank work throughout the summer but its Monetary Policy Committee, which sets the Official Cash Rate, does not meet for nearly three months. It last held a meeting on November 28 and is not scheduled to meet again until February 19.
At a press conference following the November meeting, Governor Adrian Orr dismissed criticisms that the gap between meetings was too long.
“Rest assured the Reserve Bank is on watch the whole time. Whilst we have scheduled meetings we can meet at any point. At this point we don’t think we have to … but we have done that in the past,” he told reporters.
“This bank does not close over summer. In fact, it has some of its busiest periods … we do not just shut the door and come back on February 19th”.
Orr said he was conscious of the long break and that was why the committee had tried to provide financial markets with a clear signal that it had another 50 basis point cut planned.
“But it is also why we are trying to speak as explicitly as we can around our forward path, having interest rates coming down faster than [we did] in August. That has been priced into financial markets for some time,” he said.
Loud and clear
Businesses do seem to have got the message. The New Zealand Institute of Economic Research’s quarterly survey of business opinion showed firms were becoming more confident in December, despite experiencing weaker demand for their goods and services.
This positive sentiment, combined with lower market interest rates, effectively brings forward some of the benefits of the benchmark rate cut from February to today. Still, the Prime Minister's comments suggest he would prefer faster action from the central bank.
Bridges responded to Luxon’s remark by saying there should be only two possible decisions on the table at the next Reserve Bank (RBNZ) meeting, either a 50 or 75-basis-point cut, though the Prime Minister said he would “leave that for someone else to think through”.
Luxon has been increasingly attempting to take credit for low inflation, even though it was trending lower long before he took office and few of his policies have had an impact on prices.
When asked about this, Orr has tacitly pushed back on the claim, quoting John F. Kennedy: 'Success has a thousand fathers."
The RBNZ’s assessment of the Coalition’s fiscal policy is that it does support lower inflation but not significantly more than Labour’s pre-election forecasts. During the year, the MPC meets roughly every six weeks.
49 Comments
No reason except much of the data required comes from people nagged or compelled to provide it. If you as a business are happy to do fortnightly GST returns and monthly tax returns, the data gleaned from that would be very valuable. As it stands, we file our tax return nearly a year after the end of the tax year, so the data gleaned is not timely or very relevant. Multiply that by all businesses and you can see why useful data is hard to come by.
Didn't they already cut all that 'easy to cut and worthless' waste. What have they been doing for the last year?
Oh wait setting up more bureaucracy with more highly paid bureaucrats than the previous govt. Who knew, all the wasteful spending that Labour was doing isn't that easy to cut.
https://www.rnz.co.nz/news/political/525769/new-ministry-paying-staff-a…
Not the full picture but....
https://www.rnz.co.nz/news/political/539754/pm-christopher-luxon-says-g…
https://www.rnz.co.nz/news/political/539780/something-old-new-borrowed-…
And there's many more media appearances. Sure, I guess you could say the Govt are using the potential of further economic contraction and death spiralling as an excuse to allow donors to profit. Or, they are actually right now worried that our economy is not magically recovering and doubling down on neoliberalism. If you want to give donors kickbacks you it discreetly. (it's not like he going to get an early RBNZ meeting and cuts, he's just wishing for it and neoliberal virtue signalling).
I think they meet frequently enough, given the pace at which monetary policy acts. Maybe they could shuffle the calendar to avoid the optics of the '3 month break' but no one cared about that until this recent inflation surge, so I think that's a sign of more general frustration with the RBNZ.
Ultimately what they need is timely labour market and inflation data prior to their meetings. This could be addressed by 1) instructing (and funding) Stats NZ to produce complete monthly CPI data, 2) leaning more heavily on higher frequency data sources and 3) adjusting their schedule so they never meet the week before a major data release.
Minster Bayley shot down 1) when asked about it last year (surprise, surprise). There's evidence they're doing 2) - the initial rate cut in August was prompted in part by a deterioration in survey data. And I've got no idea why they haven't done 3). Really the bigger issue in this cycle has been the inaccuracy of their forecasts, which can be attributed to some mix of clouded thinking and models that weren't robust enough to handle the unique circumstances of the past 5 years.
Related rant: It's clear that this government is extremely scared of spending money on anything, no matter how trivial, but if they want to achieve these growth goals they'll need to do something - BS policy manipulations like those announced today aren't going to cut it. My read is that their entire reelection strategy is based around having mortgage interest rates back down to low levels as soon as possible (look how hard they celebrate the slightest movement in CPI/OCR), but if the price we pay for that is a moribund economy then I'm not sure it'll pay off. Perhaps they're hoping rates will come way down this year and that'll give them head room to hit the juice in 2026.
I'm still n the fence of the long term plan. They've shuffled papers and cancelled loads in the 1st year, my guess is that they're trying to get a couple of major reform announcements done this year to be enacted next year so that they can claim some larger scale achievements and say to NZ "We've done it, but you won't see the changes noticeable until the next 2 years so vote us back in and we'll keep this ball rolling". Buckle down now, then change the budget and spend up when the projects are announced and committed, seems like an ok strategy at least but of course I'm only spitballing here.
Jenny Ruth's article on the RBNZ is now un-paywalled. Well worth a read.
https://justthebusinessjennyruth.substack.com/p/rbnz-refuses-responsibi…
Highlights:
- The word “recession” doesn't appear at all in RBNZ's latest annual report and nor did it appear in the 2022/23 report.
- There's been a marked decline in mention of the word “inflation” in RBNZ annual reports since Adrian Orr became RBNZ governor. This year there were 33 mentions of inflation or inflationary. In the 2016/17 annual report, there were 88 mentions of the word inflation
- The word “climate” appeared 39 times in this year’s reports, although that was down from 60 mentions last year and 58 in 2021/22. There were zero mentions of the word “climate” in any of the 2015/16, 2016/17 and 2017/18 annual reports.
- RBNZ staff numbers have ballooned from between 200 and 250 through to 2017 to 601 with 91 jobs added in the latest year at a time when the government is trying to downsize the public service.
- In 2017, 132 RBNZ employees earned more than $100,000. In the latest year, there were 436 staffers earning six figures. In the year ended Jun 30, 2018 those earning more than $100,000 cost RBNZ between $22.6 million and nearly $24 million. In the year ended June, 2024, these people cost RBNZ between $72.1 million and $76.5 million.
I don't get why everyone is obsessed with those earning >100k. The RBNZ has a really important job to do, you don't want it run by a bunch of unskilled monkeys or low paid and inexperienced interns, it would be a bigger disaster than it currently is.
Also the word "climate" can have multiple meanings. "In the current economic climate, interest rates are coming down", so that sort of analysis is just stupid.
Well, it used to run just fine with less than half the number of employees, and $50M less in salaries. Even if you just kept the same number of people (250) from 2017 and paid them all $100k+, you still would not end up with 436+ people on six figure salaries.
Also, I'm pretty sure a journalist of Jenny Ruth's calibre didnt simply do a Microsoft word count but considered the meaning in which it was used (as she also points out, the word inflation was twice used in relation to inflation-indexed bonds. She's not stupid.
I shall presume you are one of the people employed by the RBNZ earning $200k a year to write reports on "climate impact".
No I aren't.
It is a simple word count of climate, I just looked it up. But the report has a whole section on their new climate change strategy and how they (under orders from the Finance Minister in 2022) have been asked to look up climate related financial risks to include in their modelling. Which is fairly sensible, given if we had multiple climate related disasters in a short period, the banks and/or insurers might come under stress.
Sure, the number of people employed at the RBNZ might be greater, but what is considered too high? Since you appear to want to be the arbiter here, please give us a number and tell us what should be cut from their functions.
They're not providing public services though. That's the point. The public service was provided by the people who worked there before Labour took over. The other 350 people are simply troughers. Everybody who has been hired since 2018 should be sacked. Absolutely nobody would miss them.
Maybe you need to look up their mandate. Their mandate is to provide a sound, stable, efficient monetary and financial system. Inflation is but one part of that. Here: https://www.rbnz.govt.nz/about-us/our-purpose-vision-and-values
If climate change is going to affect the stability of the system of which they are managing, then they need to take it into account. That's not rocket science. They aren't "managing climate change" but its effect on the financial system.
Probably where all the money went - everyone changed jobs, got double the salary. "I'll do your job, you do mine, we both get a massive salary bump". Just a public sector money go round. I was told by an insider this is exactly what has happened in Health NZ - all the senior managers of the individual DHBs simply got new roles in the unified organisation, on even more money. They're laughing, while forcing staff cuts on the front line.
If you want to look at bloat, look at the Ministry of Health around 2020 onwards.
Health NZ are cutting back in too many ways as they need staff to process everything in the transition btu aren't hiring and are lumping more work onto others left behind or who aren't made redundant. There are not more managerial or upper roles to my knowledge, but on the flipside you can't throw money at something and expect a result. Too many other variables and inputs than money alone.
Currently things are slowly coming back from the laxity and lack of oversight and accountability seen in that period, 3ith the focus being on performance and accountability being a positive, but it is hard to look at the likes of Health NZ ordered to proceed in Labours term, and now having to go through with it in a time of economic recession and cutbacks. the smart thing would have been to leave it and embark down this path at the bottom of the economic cycle IMO.
My view is that the OCR - and the other stuff they never mention - should be reviewed monthly and a report published monthly on how they see the data. Data arrives all the time. There is no reason why sage decisions can't be made monthly.
Frequent, smaller changes would be extremely beneficial at sending messages earlier, while taking the marketing power from the 'bank economists'.
.... And would make these clowns pull their heads in and stop grandstanding.
Agreed.
Though, with regard to the OCR, we could also just use a sensible PID model, and have the RBNZ ensure it was fed quality data.
I'd also like to see the inflation target at 0% - when they consulted on 0/2/4% a couple of years ago, their advice to participants was "we don't want to implement 0%, so we're not going to talk about it". Noting they were pushing for 4% at the time because they were well out of their 2% band.
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