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Orr says RBNZ still under-resourced, funding model part of second phase of review

Wednesday 12th December 2018

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The Reserve Bank continues to be under-resourced, despite paying its third-biggest dividend this year, but the review of the Reserve Bank Act is currently looking at its funding model, governor Adrian Orr says. 

Currently, the central bank negotiates a budget with the government every five years. "When you look back five years and think about what are the unanticipated things that have happened during that period, it's phenomenal, and that won’t be very different in the next five years," Orr told the Parliament's Finance and Expenditure Committee at the 2017-18 annual review of the RBNZ.

It is three-and-a-half years into the current five-year period. 

Orr said he was "very comfortable" with the skill set at the bank but "more people would be useful."

He said under-resourcing tends to rear its head when there is a crisis, which isn't the current case. "Hence it is the time when you want to put the roof back on the hay-shed while the sun is shining."

Deputy governor Geoff Bascand said the bank has told the government it needs another 15 people on the regulatory, supervisory side.

However, Orr said that request "has been put on hold until post phase two of the review."  

The Labour-led coalition government announced a two-phase review of the 29-year-old Reserve Bank Act shortly after taking office to modernise the policy frameworks, governance, and accountability arrangements. The second phase kicked off last month, and includes resourcing and funding as one of the nine key topics. 

Orr's comments came just as the central bank said it appointed Patrick Hoerler to its senior leadership team – as assistant governor and general manager of business operations. It continues to recruit for two vacant assistant governor positions. 

According to Orr, not only is the bank under-resourced on the personnel front, but "we have many, many capital challenges that we will be discussing," he said. 

The central bank's under-resourcing also comes despite it paying $430 million as a dividend to the government in September, its third biggest, and up from $145 million a year earlier. 

A new dividend policy was introduced in 2009 for the distribution to include foreign exchange movements if there is an expectation gains will be crystallised. The finance minister makes the call with advice from the RBNZ's board and audit committee, among others.

Orr said that in a "normal business case, dividends would be net of all reasonable costs, but we provide the dividend full stop. Then we come and negotiate a budget once every five years."

The RBNZ reaped a $237 million gain on foreign exchange revaluations in the year ended June 30, compared to a loss of $66 million in 2017. That gain underpinned an almost trebling of the central bank's annual surplus to $456 million from $155 million, the bank's annual report shows.

Orr said the New Zealand dollar has been "remarkably well behaved" and that its depreciation could be clearly explained by the economic fundamentals such as low inflation and the interest rate differentials with other countries.

"We have an open foreign exchange holding and, when the New Zealand dollar falls, we make money," he said.  Around 75 percent of its holdings are hedged while 25 percent are not. 


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