Shock And Orr: The Sudden Resignation Of The Central Bank Governor

Thursday, 6 March 2025, 7:26 pm
Article: RNZ

Gyles Beckford, Business Editor

Analysis: Was the chair of the Reserve Bank's board Neil Quigley thinking of the Kenny Rogers' country classic 'Lucille' when he faced a clutch of reporters to explain the abrupt resignation of the Governor Adrian Orr ?

Probably not, but the chorus line - "You picked a fine time to leave me Lucille" - might have resonated.

For Quigley seemed as much at a loss to explain Orr's sudden departure, and why the governor had abruptly decided to take the leave owing him, and clear his desk at the end of the month.

Quigley said it was not an issue of performance, conduct, or policy, but there were issues and discussions about the central bank's funding agreement with the government, which is up for a decision.

He said any comment on health issues were personal and would have to come from Orr.

It would seem the matter had been discussed for several days, before a decision and agreement on Orr's departure was settled.

And the timing. On the eve of a major RBNZ-hosted conference of economic, finance and monetary policy movers and shakers, including a couple of overseas luminaries - former US Federal Reserve chair Ben Bernanke and Bank of England monetary committee member Catherine Mann.

'These things happen' was the essence of Quigley's reply.

No love lost

Finance Minister Nicola Willis was a notable critic of Orr and the RBNZ when in opposition as well as his early reappointment for a second term by Labour's Grant Robertson in late 2022.

She had criticised the RBNZ's role in stoking inflation and then failing to control it, and on taking the finance portfolio she moved quickly to strip the employment mandate from the RBNZ's monetary instructions and return it to a single inflation-targeting role.

Quigley said there had been no dissatisfaction with Orr's performance voiced by Willis, nor any suggestion that his going would be to the RBNZ's benefit.

But her tepid farewell and good luck message spoke volumes.

Orr was roundly scalded by some academics and private economists for being erratic, late to recognise inflation was rampant, slow to turn off the monetary and fiscal stimulus, and late to get inflation fighting.

Nor did he make many friends in the banking industry with a dogged determination to make banks carry more capital to cope with any financial calamities, such as the global financial crisis.

And among consumers, home buyers, and small businesses the surge in borrowing costs, the overheated housing market, and then the "engineered" recession to tame inflation spurred much justified angst and anger.

And there was a litany of other complaints ranging from Orr's sometimes abrasive and rude manner, the RBNZ's straying into climate change issues, and even the use of Te Reo in its branding and marketing.

Back to the future?

The path may already be set.

The RBNZ's mandate has been simplified - keep inflation between 1-3 percent and maintain financial stability in the banking .

The government has already singled out the RBNZ as having an important role in bringing much desired competition into the retail banking sector.

It's been suggested it needs to loosen banking rules and capital levels to encourage new entrants into the sector and the development of open banking.

When that suggestion was floated last year after the Commerce Commission banking industry study it drew a caustic response from Orr that the RBNZ was not eager to relax rules so poorly financed, small concerns could fail.

The government is making slow progress in breaking the dominance of the big four Australian owned banks and is waiting for what might be a favourable and friendly finance select committee report into rural banking services currently underway.

That would allow more action to loosen the RBNZ's grip on the sector without the staunch objection of one of its chief architects.

It may take as much as nine months to find a replacement for Orr, with the RBNZ board bound to set the international head-hunters on a global search, although history shows the replacements have usually been found closer to home.

© Scoop Media

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