New Zealand's finance minister is expected to announce a new central bank chief in the coming weeks, with economists hoping the move will signal the end of a tumultuous period in which both the bank's governor and chairman unexpectedly departed.
Whoever takes the reins of the Reserve Bank of New Zealand faces a tough task: repairing the reputational damage done by a deep downturn in the economy, while defending the bank's independence from a critical government.
"We face a test of trust and confidence in us as an organisation," interim Governor Christian Hawkesby said in a speech earlier this month.
"I want to assure you that we are resolutely focused on our mandate of delivering low and stable inflation in the medium term, and a resilient and enabling financial system,” added Hawkesby, who has confirmed he wants to remain in the job.
Former governor Adrian Orr sometimes wrong-footed financial markets with policy decisions and shocked them by resigning suddenly in March following a dispute with the government about punishing cuts to the central bank's budget.
The controversy eventually claimed the scalp of the RBNZ's chair Neil Quigley, who oversaw operations at the bank. Finance Minister Nicola Willis said she would have asked him to resign if he had not quit.
The centre-right government has become more vocal in other areas, with Prime Minister Christopher Luxon publicly saying he had told the RBNZ what he views they should do with interest rates.
Such pressure, reminiscent of what the U.S. Federal Reserve is facing, is unusual for the RBNZ, whose independence has largely been respected by previous governments.
"In the past, central banks (globally) were largely left alone to do that, but now it's becoming more challenging,” said John McDermott, who was chief economist at the RBNZ until 2019.
"Some politicians just want to take over... and there's been an element of that in New Zealand as well," without elaborating.
McDermott, who heads economic and public policy institute Motu, has been named by some local media as a possible applicant for the role. He declined to comment on the reports.
IN A STATE
The brace of resignations cap a difficult few years for the once highly regarded central bank.
The bank has faced criticism for abetting a surge in inflation by pumping billions of dollars of stimulus during the COVID-19 pandemic. It was then forced to engineer a recession with high interest rates to get prices back under control.
An internal review concluded its dramatic easing during COVID-19 was warranted, but that cut little ice with consumers and borrowers suffering a cost-of-living crisis.
The RBNZ has since cut rates by a steep 250 basis points to 3.0%, and flagged more easing to come. Yet, consumer and business confidence remains low, unemployment is at a near five-year-high and a record number of New Zealanders are heading offshore.
McDermott said the RBNZ needed to reestablish that it can manage inflation over the long haul.
"Trust is hard to win and easy to lose. And so it's going to be a long journey," he said.
WHO'S NEXT?
Along with McDermott, Dominick Stephens, currently chief economist at Treasury, is also a potential applicant for the top job. He declined to comment on his interest in the role.
Toni Gravelle, deputy governor at the Bank of Canada, said he was "no longer in the running."
Oliver Hartwich, executive director at New Zealand Initiative, said he believed an external candidate might be more successful at turning things around.
"It'll be easier for someone who's not connected to the current regime, and potentially even a foreigner, coming in and saying: ‘Well, I'm not here to make friends, and I don't have to pay too much attention to what's historically happened here. I will just implement what needs to be done'," Hartwich said.
Arthur Grimes, RBNZ chair until 2013, said holding onto senior staff with economics expertise was key.
"People who are just going to do a quiet job and run things, essentially technocrats, in the background," he said. “If you don't hear about the Reserve Bank from one month to the next or one quarter to the next, it's doing a good job."
In a wishlist of reforms, Westpac chief economist Kelly Eckhold said the next governor could improve transparency and accountability by introducing formal votes at all monetary policy decisions and holding a press conference after every one.
"Explicit votes, combined with an explanation of each member's rationale, would clarify both the options under consideration and the level of support for each," argued Eckhold.
"This reform would help anchor expectations and potentially reduce market volatility surrounding policy announcements."
(This story has been refiled to say 'Luxon,' not 'Luxton,' in paragraph 7)
