The Reserve Bank governor shocked the business world with his resignation announcement. Why now, and why so sudden, asks Catherine McGregor in today’s extract from The Bulletin.
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‘An embarrassment for the bank’
Adrian Orr has suddenly resigned as Reserve Bank governor, and no one wants to say exactly why. Neither the prime minister nor the finance minister, Nicola Willis, would be drawn on the reasons for Orr’s departure, while Neil Quigley, chair of the Reserve Bank’s board, said only that Orr “feels he’s achieved the things he wanted to achieve” in the job and had decided it was time to go.
“Market participants” tell Interest’s Dan Brunskill the speed and suddenness of Orr’s resignation is “bizarre and surprising”, especially since it came just a day before he was due to open a monetary policy conference featuring former US Federal Reserve chair Ben Bernanke. Orr is no longer attending, the Herald understands.
In an opinion column in The Post (paywalled), Luke Malpass writes that “it is extremely rare – globally – for central bank governors to resign mid-term and almost unheard of for them to pull the pin, effective immediately. The way it played out was an embarrassment for the bank and everyone else involved.”
What Orr got wrong
In recent years, Orr’s pandemic-era stimulus measures – once seen as a lifeline for the economy – have been criticised as too much, for too long.
Last month a panel of leading economists said that in retrospect, both the government and the Reserve Bank overestimated the Covid financial meltdown, leading to excessive stimulus that fuelled inflation. ASB’s Nick Tuffley said that “we ended up throwing literally everything into” the crisis. “Perhaps the lesson [from the era] is being more onto it for signs you’ve done enough.” ANZ’s Sharon Zollner said those in charge of the economy should have been more willing to question their assumptions, reports RNZ’s Susan Edmunds. “If your economy has house prices going up the fastest in the world, would you have interest rates at practically zero and talk about adding more stimulus in every way possible? But hindsight is a wonderful thing.”
‘A very exasperated school principal’
Having helped pump the economy with record low interest rates, in October 2021 the RBNZ reversed course, raising the OCR harder and faster than central banks in other peer nations. In November 2022 Orr admitted the RBNZ was deliberately trying to engineer a recession to rein in inflation; by March 2024 he’d achieved that goal. As the screws turned on the economy, Orr’s post-OCR-hike press conferences took on the tone of “a very exasperated principal watching five million children refuse to come in from spending playtime and thus requiring a mass cash detention”, wrote The Spinoff’s Duncan Greive in January 2023.
Bank capital rules may have played a key role
With inflation now under control, Orr is stepping aside. BusinessDesk’s Pattrick Smellie (paywalled) cites a few good reasons he might be going, involving both political tensions and policy battles. However Smellie thinks Orr’s stricter capital ratios – requiring banks to hold more capital to withstand financial crises – were likely a deciding factor. With the government eager to boost economic growth, Orr faced strong pushback from those who felt the strict rules stifled competition and business lending.
As for who might replace Orr, Smellie says while new acting governor Christian Hawkesby – formerly Orr’s deputy – is extremely capable, he’s basically more of the same. Prasanna Gai, an economics professor at the University of Auckland, could be the “internationally credible new broom” that the RBNZ is looking for, Smellie suggests. The NZ Herald (Premium paywalled) also mentions RBNZ chief economist Dr John McDermott (now heading up think-tank Motu), Treasury chief economist Dominick Stephens and current assistant RBNZ Governor Karen Silk as contenders.
