Appointment of Adrian Orr to RBNZ a signal for change?

13 December 2017

Appointment of Adrian Orr to RBNZ a signal for change?

Media Release - 13 December

The appointment of Adrian Orr to be the new Governor of the Reserve Bank of New Zealand (RBNZ) appears to be a good move by the Minister of Finance.  To be really effective, however, Mr Orr will need to take seriously the issue of our sustained overvalued exchange rate over the last decade which has played a role in holding back export growth.

“We are hopeful the appointment of someone from has worked inside the RBNZ, but also had a very successful career outside since, signals a willingness for reform within the bank, given the review and the new Government’s pre-election promises of changes to targets and the decision-making model, says Dr Dieter Adam, CE, The Manufacturers’ Network.

“Under the previous Governor’s leadership we saw consistent comments around the role of the currency in holding back growth in exports. We did not, however, see much credible action to change the situation. We understand that under current settings, the RBNZ has limitations as to what it can do to address the exchange rate level and volatility. With a new Governor more willing to act within existing means and the potential for wider reform, there is an opportunity to make strides to address the challenge.

“Our currency remains significantly higher than long term averages, both on the Trade Weighted Index and critically, against the Australian Dollar, where much of our manufacturer's export revenue comes from. 

“The RBNZ’s recent work to introduce macro-prudential tools, such as the loan-to-value ratios have been a positive move to address concerns on financial stability while giving the Bank more freedom to act on interest rates.  We would encourage the incoming Governor to continue down this path, particularly in continuing investigation of debt-to-income ratios. 

 “Addressing the currency challenges our tradable sector has faced over the last decade are key to helping to improve our export success and the transition to a more productive and high value economy.  Let us not forget, however, that the use of updated targets and additional tools by the RBNZ alone won’t suffice to meet the challenge. The Government needs to make decisive policy changes to address the economic fundamentals behind – first and foremost - the misallocation of capital into property speculation, high levels of household debt, and the absence of any significant productivity growth in the real economy of New Zealand." says Dr Adam.