Reserve Bank Governor Selection A Stab In The Dark

INSIGHTS ABOUT THE NEWS - An organisation’s stakeholders are a person, group or another organisation with an interest or concern in its activities and can affect or be affected by the organisation's actions, objectives and policies. Not all stakeholders are equal and not all effects are positive, as a company’s staff will quickly find when their bosses plan a round of layoffs to cut costs.

As reported in the Trans Tasman Political Alert, RBNZ communications manager Mike Hannah, in a recent speech, explained how the central bank engages with its stakeholders, ranging from governance relationships, financial institutions and markets to the media, educators and the public. The bank applies “considerable senior resource” to maintaining relationships, engagement and communications.

These engagements occur against an ever-changing economic and financial backdrop. Substantial “demographic” changes among those with whom the RBNZ interacts come into considerations too. They include the outcomes of general elections “for our Parliamentary stakeholders.”

We can only speculate on who these stakeholders will be after the general election in September. We do know a change of Govt will result in changes to monetary policy and RBNZ governance. Labour would continue the RBNZ’s current inflation target of 1-3% but add the goal of full employment to the bank’s mandate.

Further, it would remove NZ’s reliance on the governor alone to set the Official Cash Rate, in effect formalising current governor Graeme Wheeler’s practice of using an OCR decision-making committee (comprising himself, two deputy governors and his assistant governor) to reach OCR decisions. Finance Minister Steven Joyce is sympathetic enough to have asked former State Services Commissioner Iain Rennie to review the merits of such an arrangement.

Whatever transpires, aspiring governors had no clue about the job they were seeking when applications closed last Saturday. The RBNZ board, which must consider the merits of the applicants and make a recommendation to the Minister of Finance, can have no idea, either.

Economic blogger Michael Reddell has highlighted the absurdity of this: an unelected board will decide who will be recommended to the incoming Minister of Finance to be governor, the sole legal decision-maker on monetary policy and for most aspects of banking regulation.

The governor gets to decide whether banks are even allowed to lend to you by residential mortgage. This “gaping democratic deficit” (too much power in one person’s hands) is worsened by the fact elected politicians (whom we can hold to account) must take a name handed to them by company directors appointed by the previous Govt.

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