The Reserve Bank’s Monetary Policy Committee is the (statutory) group and forum that makes OCR decisions. On paper at least, it is a powerful committee, for good and ill. The mistakes of that committee over 2020 to 2022 have given us high core inflation, well outside the target range. Fixing those mistakes – getting inflation back near the centre of the target range (where they are required by ministerial remit to focus – is likely to put the New Zealand economy into recession, and many people at least temporarily out of a job. It is still quite a new institution, having come into effect just four years ago on Saturday (Grant Robertson’s 2019 April Fool?) and with macroeconomic circumstances being as they are you’d have thought the powers that be would be focused on ensuring looming vacancies are filled in a timely manner. The new – glaringly inadequate – Reserve Bank Board has a big say in who gets appointed to the MPC (the Minister can reject a nominee they propose but can’t substitute his own – any MPC member has to have been nominated by the Board, a Board which itself has next to no expertise in such matters.
As a reminder, the MPC has four internal (staff) members and three part-time external members. That was the wrong balance to start with. but any hopes for the Committee were further eroded with (a) giving the Board notional control while appointing high school board of trustees quality board members, (b) requiring that the Governor be consulted on who should be appointed (the two taken together give the Governor an effective veto on anyone who might make life awkward for him or his managers), (c) when the Minister, Governor, and Board chair got together and agreed that no one with any current or likely future serious interest in macroeconomic analysis or research would be allowed as an external member of the MPC, and (d) when external members were not required, indeed were strongly discouraged, from putting their views or analysis on record, whether in the minutes or in speeches/interviews. And if the internal members were supposed to provide the serious expertise, any such claim appeared all the more risible when first the foundation chief economist never said a word in public, and then a new deputy chief executive (Assistant Governor) responsible for macro/monetary policy and analysis was appointed, with not a shred of qualification, experience, or credibility in the field. External MPC membership seems to be mostly cosmetic – a moderately well-paid late career or early-retirement gig for comfortable establishment figures. No doubt they do a little more than turn up to eat their lunch, perhaps it is even an interesting experience for appointees, but there is no sign (literally no evidence at all) of any of the externals having added any value whatever.
The first three external MPC members were appointed to staggered terms. The initial terms of Bob Buckle and Peter Harris expired this time last year, and they were reappointed (evidence suggests with no serious scrutiny of their record or contribution, but no doubt they made no trouble), Buckle for a further three years and Harris for a further 18 months. By law, in both cases these are their final terms. I’ll come back to Harris a bit later.
The third external MPC member, Caroline Saunders, was always the most egregious of the initial MPC appointments. It was pretty clear from OIAs done at the time that her primary qualification at the time was that she was a woman – come what may, Robertson was determined to have a woman on the MPC. Saunders is a Phd economist (as it happens, the only one on the MPC), professor at Lincoln University. This is her bio (from her university page)
She seems to publish quite a lot. These are just the most recent papers she lists
Potentially really interesting, possibly even valuable. But of course none of it suggests any capability relevant to setting New Zealand monetary policy.
There is a range of views about quite how an MPC should be made up. I’m not one of those who think that all seven members should be macroeconomics researchers, or even come equipped with a PhD – these days a prerequisite for academe, but not for most other policy and policy advice roles. But especially when the internal members are so weak analytically in these areas (read their rare speeches if you doubt me), it seems extraordinary to have someone like Saunders on the MPC.
As it is, it appears that as of Saturday she no longer is. The Reserve Bank website still lists her as a member
but the initial press release appointing her was clear that the appointment was from 1 April 2019 and was for four years (the maximum initial term allowed by law).
By law, the Minister of Finance can extend a term (without reappointing her) for up to six months – a provision that seems most likely to be useful around general elections – but (a) there has been no sign of such an extension (and nothing on the RB website) and (b) it would seem particularly inappropriate to be doing a short extension right now, which could only take a substantive decision on appointment or replacement closer to the election (itself now 6 months and two weeks away). From this government’s perspective, it would have seemed much more appropriate to either reappoint Saunders for several years, or to make a new multi-year permanent appointment.
So (unless there is something out of Cabinet today) it appears that Saunders is not an MPC member and should not be participating in this week’s OCR review decision.
What isn’t clear is what is going on and why. It isn’t as if the Board and Minister have had no notice – not only have they had four years’ notice (four year term) but they managed smoothly enough last year the end of the terms of Bob Buckle and Peter Harris. Even the new Board has been in place since 1 July, and they managed to reappoint the Governor months ago.
Whatever is going on seems far from best practice. If Saunders was to be reappointed, it could and should have been done months ago. If she wasn’t to be reappointed, one might have hoped for an open and transparent process, in which the coming vacancy was advertised, relevant skills identified etc. But thus far, we’ve had nothing at all.
In other countries, there might be some focus. After all, in the US, or UK, or Sweden we’d have some sense of the views, and mental models, of the outgoing member, and in a fairly small MPC a departure, and a vacancy, could shift the balance of the committee. Here, no one supposes the external members matter, and probably Saunders least of all (Buckle and Harris have each made one or two (unrevealing) public comments during their term, but from Saunders not a word at all). But it really is quite a bad look for one of the flagship aspects of the first wave of the legislative overhaul of the Reserve Bank.
I’ve noted before that Peter Harris was given a second term of only 18 months, expiring on 30 September this year. It was puzzling at the time, since it was always likely the general election would be in the last few months of 2023. No explanation was given as to why, say, Harris was not given a two-year term, which would have carried him through to March 2024 when a new government (old or new) could have made a new permanent appointment (Harris cannot be reappointed again). As it is, with election day now scheduled for 14 October, the Harris term should also be getting some focus. Harris presumably can have his term extended for six months (but the issue should never have arisen, as there is no great surprise about the election date), and the Minister of Finance should be making it clear soon that that is the approach he will take. It wouldn’t be desirable to leave a vacancy on the MPC – especially at such a turbulent time – and it should of course be out of the question for the current government to make a new permanent appointment with a commencement date just two weeks from election date.
The New Zealand MPC model was moribund almost from its creation, and no doubt that suited both the Governor (especially) and the Minister quite well (gain the appearance of substantive change without the substance). It is a salutary lesson for those championing reform in Australia, where the door is now open for real substantive change but where the incumbents may have strong incentives to protect their patch. On this side of the Tasman, I hope that real and substantive reform of the RBA governance model will put pressure on for revisiting that damp squib Orr and Robertson created here. For all the statutory limitations, a lot could be done here even within the current law by a Minister who was serious about a much stronger institution, and the foundations for better and more accountable policy over the medium term. A good start could be made by appointing much more able people – expert, fearless, open-minded, engaging – to the two current and forthcoming MPC vacancies.
