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RBNZ seeks governor with 'gravitas' as central bank sensitivity comes under scrutiny

Thursday 22nd June 2017

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The Reserve Bank is seeking a new governor with "gravitas" to lead "a high-performance culture" that includes effective communications, one area where the bank has been both criticised and thin-skinned.

The bank began advertising locally and internationally for a new 'chief executive' this month to replace governor Graeme Wheeler, whose five-year term expires on Sept. 26. The ideal candidate would be "a person of outstanding intellectual ability" and a leader in the financial community with "the ability to make decisions in the context of complex and sensitive environments" with a personal style "consistent with the national importance and gravitas of the role", the ad says.

Under Wheeler, the central bank ended a long-standing policy of holding lock-ups for reporters and analysts, where they could view market-sensitive policy and economic releases under embargo and had time to deliver balanced reports when the material was made public. It was punishment for a MediaWorks reporter who defied the lockup rules by secretly sending the details to their newsroom. Wheeler has also dialled back the number of off-the-record 'fireside chats' with select media and key commentators that have historically helped telegraph the bank's thinking.

But the recent release under the Official Information Act of correspondence between Wheeler and Bank of New Zealand chief executive Anthony Healy shows the current governor has also been willing to personally confront criticism of his administration and used his status to attempt to muzzle the critical tone taken by BNZ head of research Stephen Toplis. Wheeler took umbrage with the "personal nature of criticism" in BNZ's commentaries when calling on Healy to rein in his top economist. But the publication of the letters, released to BusinessDesk under the Official Information Act, has brought more criticism of the governor.

New Zealand Initiative executive director Oliver Hartwich said in a note that it wasn't acceptable for the governor "to attempt to stymie" external commentary and that Wheeler had "overstepped his role" by complaining about a bank economist. 

"I couldn't believe it - it's ridiculous," Hartwich told BusinessDesk. "Wheeler is not inexperienced, he should know that when he does anything like that someone will find out about it. Someone in his position should know that."

Hartwich says the letter raises some governance issues at the bank, which is chaired by Waikato University vice-chancellor Neil Quigley, at a time when both the opposition Labour Party and Finance Minister Steven Joyce have monetary policy decision-making under the microscope. Under current legislation, the governor has sole responsibility for policy decisions, unlike central banks in Australia and the UK.

Joyce told media last week he hadn't asked for any reports from the Reserve Bank's board on Wheeler's letter and that he wouldn't comment on it. 

"That’s a matter for the Reserve Bank governor as to how he conducts his communications with the banks and their economists and I think it would be an unproductive use of my time to involve myself in that space," he said. 

David Tripe, associate professor at Massey University's school of finance and economics, said the Reserve Bank hadn't been effective in communicating its goals, and that question marks hang over the current regime's management, prompting opponents to put forward alternative governance arrangements and policy targets. With Wheeler leaving after one term in the job, Tripe said people should "wait and see what new governor does", which might lead to "less agitation" for change. 

Industry lobby the Bankers' Association declined to comment on Wheeler's correspondence, saying the issue only related to one member. In a statement, BNZ's Healy said the lender has "the greatest respect for the RBNZ" and had a constructive relationship. While it was important economists be independent and not influenced by the wider organisation, "we have acknowledged that from time to time, we may not get the right tone and will always take on board any feedback where our intent or message is not reflected in the language used," Healy said.

In recent years, the Reserve Bank has has added macro-prudential tools to the levers it can operate to influence the economy, including politically unpopular mortgage lending restrictions that have made it harder for first-home buyers to enter an inflamed property market but have succeeded in taking some of the steam out of house prices in Auckland.

The Reserve Bank's communication is something economist Shamubeel Eaqub also sees as a failing under Wheeler, who has eschewed personal appearances, such as on current affairs programmes, preferring his lieutenants to field interviews. 

"He’s been a technical operator," Eaqub said. "That role of public education is not something they’re doing particularly well." 

Eaqub is also critical of Wheeler's letter to the BNZ chief also calling it "ridiculous". When he was at Goldman Sachs JBWere, Eaqub criticised the Reserve Bank, then overseen by governor Alan Bollard, for being "out of synch with the rest of the world" in the lead-up to and during the global financial crisis. Those comments prompted the Reserve Bank to complain to his employer. 

In previewing the May 11 monetary policy statement, Toplis had written that it would be "negligent" of the bank not to admit it had a tightening bias, expressed "through an explicit expression of rate increase(s) in its published OCR track". 

The BNZ's Healy replied to Wheeler's May 11 letter that the lender was "reviewing the contents of the BNZ Markets Outlook and the concerns expressed in your letter in detail" and that he personally would call the governor to discuss the outcome of the review. Wheeler's letter makes clear that he reached out to Healy after failing to get his concerns addressed with direct approaches he and his deputies had made about a number of examples of commentary he deemed damaging to the Reserve Bank and New Zealand's financial market. Toplis has declined to comment.

Tripe said the bank's response to the BNZ commentary was a "little bit overly sensitive" and that he didn't think Toplis was a "serial offender". 

"Probably negligent was perhaps an inappropriate word since the Reserve Bank has chosen to infer negligent with a legal meaning, rather than using the word neglectful which wouldn't have been a legal word in that sort of way," he said. "I guess the governor got into this because there had been previous discussions, it appears, according to the correspondence, with a number of people involved." 

Tripe said the correspondence reminds him of a similar censure he got from the Reserve Bank when then deputy governor Murray Sherwin in 1998 wrote to him complaining about a comment the academic made to the Manawatu Standard over the central bank's approach to interest rates being unrealistic. 

The kiwi dollar whipped about when the OCR review was released today without a lockup, reaching as high as 72.75 US cents and as low as 71.95 cents. The trade-weighted index jumped as high as 78.42 and as low as 77.68 after the one-page statement, which included comment that the currency was unhelpfully high.


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