Wealth Fund Chief Named Governor of New Zealand Central Bank

(Bloomberg) -- Adrian Orr will oversee the biggest overhaul of New Zealand’s central bank since it pioneered inflation targeting in the early 1990s.

Orr, 54, will begin a five-year term as governor of the Reserve Bank on March 27, Finance Minister Grant Robertson said Monday in Wellington. A former deputy governor and chief economist at the RBNZ, Orr currently heads the New Zealand government’s sovereign wealth fund, which has swelled to more than NZ$37 billion ($26 billion) under his decade-long leadership.

Orr will be tasked with transitioning the RBNZ to a Fed-style dual mandate under the new Labour-led government, which plans to make full employment one of the bank’s primary aims alongside price stability. The New Zealand dollar jumped on Orr’s appointment as traders bet he won’t allow the twin goals to weaken the RBNZ’s inflation-fighting resolve.

“We have been wary of the dual mandate because it might make it harder for the Reserve Bank to raise interest rates when inflation is too high,” said Dominick Stephens, chief New Zealand economist at Westpac Banking Corp. in Auckland. “With Adrian Orr as governor, we would expect the Reserve Bank to remain realistic about what monetary policy can achieve in the long run.”

The New Zealand dollar rose half a U.S. cent on the news and made further gains overnight. It traded at 69.16 cents at 8:05 a.m. in Wellington Tuesday, up from 68.55 cents just before Orr was named.

“I wouldn’t want to classify him as a hawk or a dove,” said Stephen Toplis, head of research at Bank of New Zealand in Wellington. “He won’t want to kill off growth unnecessarily; he will equally understand the risks associated with having interest rates artificially low. He’s a realist.”

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Orr inherits an economy in its ninth year of expansion, albeit as growth starts to slow. With inflation benign and forecast to weaken, the RBNZ’s official cash rate is stuck at a record-low of 1.75 percent. The bank currently projects it won’t begin to tighten policy until mid-2019.

In addition to the challenges of introducing a new mandate, Orr takes the helm of a central bank that has faced criticism for its communication in recent years.

“He is well known as a strong communicator and is no stranger to the media, which bodes well for the clarity of communications with financial markets,” said Stephens.

Still, Orr may need to curb his style in his new role. Wellington’s main daily newspaper, the Dominion Post, wrote in January this year that while Orr “has the smarts to effectively communicate the Reserve Bank’s message” he is also “famously flippant” and may struggle to stick to the script.

Strong Contender

Of Cook Islands and Irish heritage, Orr was always considered a contender for the RBNZ’s top job. From 2003 to 2007 he was deputy governor and head of financial stability at the bank, and he ran its economics department from 1997 to 2000. He has also been chief economist at Westpac in New Zealand and had roles at New Zealand’s Treasury and the OECD.

Since 2007, Orr has headed the New Zealand Superannuation Fund, which has returned 16.2 percent per annum over the last five years.

Orr will replace acting governor Grant Spencer, who assumed a caretaker role when Graeme Wheeler’s term ended late September, just days after a general election. Spencer agreed to head the bank while a new government took office and he will retire in March.

Misgivings

While the bank appears unfazed about the impending move to a dual mandate, it has voiced misgivings about the government’s planned changes to its governance structure, which include enlarging its policy-setting committee and removing the governor’s role as sole decision maker.

Spencer has said the proposal to appoint external experts to the committee runs the risk of turning it into a circus.

“This is an important time for the Reserve Bank and New Zealand’s monetary policy framework,” Robertson said. “Orr has the standing and ability to manage this process of change.”

The appointment may soothe foreign investor concerns about the Reserve Bank reforms, said Ben Jarman, an economist at JPMorgan Chase & Co. in Sydney.

“Orr’s return delivers continuity through the transition to the dual mandate, and his organizational experience may make it easier for him to wrangle a monetary policy committee with external members,” Jarman said. “This should remove some of the term premium around RBNZ decisions and communications that might have been priced under a less experienced choice for governor.”

In a statement, Orr said he was “honored” to assume the role of RBNZ governor next year. A spokeswoman said he would not be commenting further.

--With assistance from Tracy Withers

To contact the reporter on this story: Matthew Brockett in Wellington at mbrockett1@bloomberg.net.

To contact the editors responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net, Chris Bourke, Nasreen Seria

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