Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Orr defends RBNZ rate cut, says monetary policy looks ahead

By Rebecca Howard

Aug. 16 (BusinessDesk) - Central bank governor Adrian Orr came out swinging in response to an opinion piece from BusinessNZ chief executive Kirk Hope who called on the bank to focus on a "conservative, principles-based, no-surprises approach to monetary policy."

Hope, in the piece published by, voiced concern about the central bank's latest 50-basis point rate cut, the magnitude of which took markets by surprise last week. The monetary policy committee said it opted to cut the official cash rate to 1 percent to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level.

Kirk argued businesses are reassured when the central bank operates on known principles but said "last week's OCR cut was less predictable because it did not seem to relate to current inflation or unemployment data."

Orr was swift to point out "we cannot, and do not, set the OCR based on current or historical inflation and employment outcomes. We scan the horizon and chart for the journey. We look ahead - not behind," he said in a statement on the RBNZ website.

Reading the Monetary Policy Statement "would clarify this issue for any interested party," said Orr. He underscored "global and domestic low inflation expectations sit as a key reason for lower global and domestic official interest rates."

Hope also said the RBNZ's talk of negative interest rates and quantitative easing and comments around the need for the government to borrow and spend more are also raising uncertainties.

"By advocating policies outside of monetary policy, the Reserve Bank risks creating the impression that the boundaries between Reserve Bank policy and Government policy are indistinct."

Other governors have frequently discussed the role of fiscal policy.

In the statement, Orr said "we are operationally independent, our mandate is clear, our goals are clear, and our decision-making is transparent."

Hope also voiced concern about the central bank's proposal to lift the minimum amount of tier 1 common equity capital required by the four Australian-owned banks, which account for about 88 percent of New Zealand’s banking system, from 8.5 percent to 16 percent and to 15 percent for the smaller banks.

If implemented, the bank capital requirements would undoubtedly have a significant impact on business, he said.

Orr reiterated that the proposals are being "discussed in a very transparent and open manner, and we continue to engage with an open mind and have shared submissions on our website."

© Scoop Media

Business Headlines | Sci-Tech Headlines


$7.5 Billion Surplus: Government Accounts "Show Strong Economy"

“The surplus and low levels of debt show the economy is in good shape. This allows the Government to spend more on infrastructure and make record investments in health and education,” Grant Robertson says. More>>


New OIO Application Trumps Judicial Review: OceanaGold Cleared To Buy Land For Waihi Tailings Expansion

In a surprise turnaround, the government has given OceanaGold a greenlight to buy land to expand its Waihi mine after the application was previously turned down by Land Information Minister Eugenie Sage. More>>


Christchurch Rebuild: Fletcher Sued For $7.5m Over Justice Precinct

Fletcher Building is being sued for $7.5 million by utilities contractor Electrix, one of the subcontractors on the Christchurch Justice and Emergency Services Precinct. More>>

Three New Drugs: PHARMAC Signs Bundle Deal For More Cancer Medicines

420 New Zealanders with lung cancer, breast cancer, multiple sclerosis and respiratory disease will benefit each year from a bundle deal PHARMAC has finalised with a medicine supplier. More>>


"Levels Playing Field": Government Responds To Electricity Price Review

The changes announced today include: • Supporting new and independent retailers by requiring the big power companies to sell into the wholesale market at affordable rates. • Extending discount rates to all customers • A pilot scheme to help customers who have not switched power providers before to shop around for better deals... More>>