RBNZ Governor Set to Steal the Show in Monetary Policy Debut

(Bloomberg) -- Rarely has a New Zealand interest-rate decision been more keenly awaited when there’s no change of rates in sight.

Reserve Bank Governor Adrian Orr delivers his first Monetary Policy Statement Thursday and is expected to keep borrowing costs at a record low. Yet there’s considerable interest in how Orr will present the policy outlook. Since taking the RBNZ’s helm in March, he’s embarked on a media blitz and revealed a fondness for a colorful turn of phrase.

“He’s demonstrated that he has a much more open communication style and everyone is pretty eager to see what he has to say,” said Liz Kendall, senior economist at ANZ Bank New Zealand in Wellington. “But if anything changes it’s likely to be style rather than substance. It’s still a picture of rates on hold until we see a broadening of inflation pressure.”

While the economic outlook has barely budged in recent months, a lot has changed at the central bank. In addition to Orr’s arrival, the RBNZ’s mandate has been broadened to include maximizing employment as well as achieving price stability. Its governance structure is also being overhauled to make a committee responsible for policy decisions rather than the governor alone.

Those developments have heightened interest in Orr’s first press conference, even though he’s expected to keep the official cash rate at 1.75 percent and continue to forecast no increase before mid-2019.

Elusive Inflation

Since an ill-fated tightening in 2014 under previous governor Graeme Wheeler, the RBNZ has been forced to slash its interest-rate forecasts as inflation failed to materialize, adding uncertainty to the current outlook.

Inflation slowed to 1.1 percent in the first quarter, near the bottom of the RBNZ’s 1-3 percent target band and well shy of its 2 percent goal. Unemployment has also dropped, hitting a nine-year low of 4.4 percent, but wage increases remain muted.

While the economy has been expanding at a healthy clip since 2010, supported by record immigration, growth is expected to slow in the near term. Business confidence dropped after a left-leaning government took office in October.

The RBNZ should be pleased with the 5.6 percent drop in the New Zealand dollar against the greenback in the past month, as it may boost export returns and relieve some of the downward pressure on inflation. The kiwi this week fell below 70 U.S. cents for the first time in five months.

When it comes to the currency, Orr may choose to follow the lead of acting Governor Grant Spencer, who filled the role on a temporary basis after Wheeler’s departure last year. Before he handed the reins to Orr, Spencer said the Reserve Bank should refrain from commenting on the exchange rate unless it’s out of line with fundamentals.

Media Blitz

Orr is expected to be more outspoken on other topics.

In a string of media interviews since taking office, he has stressed his commitment to price stability and achieving the 2 percent midpoint of his inflation target, suggesting there’s no rush to raise rates.

“It already feels like he has given more media interviews than the previous permanent governor gave over his whole five-year term,” said Nick Tuffley, chief economist at ASB Bank in Auckland. “More frequent communication might increase the incidence of miscommunication or misinterpretation. But we expect that a much higher level of transparency will leave financial markets and the broader public more aware of what the RBNZ is thinking and why.”

Orr has already shown a willingness to make dour central banking topics more accessible for a wider audience. In one instance he said mortgage lending restrictions are like “air brakes on a truck” in that they slow the housing market but don’t stop it.

While Orr’s presentation style will be more dynamic than his predecessor’s, the underlying message will stay the same, said Stephen Toplis, head of research at Bank of New Zealand in Wellington.

“Orr is open, articulate and sometimes very humorous,” Toplis said. “But he’s still, at his core, a relatively mainstream economist who has already committed himself to price stability with a focus on the mid-point of the RBNZ’s target band.”

©2018 Bloomberg L.P.

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