Orr Defends Timing of RBNZ’s Inflation Response as ‘Courageous’

(Bloomberg) -- New Zealand’s central bank was “courageous” to start tightening monetary policy before many of its peers, and being too out of step with others carries its own risks, Governor Adrian Orr said.

Appearing before parliament’s Finance and Expenditure select committee Thursday in Wellington, Orr was asked if the Reserve Bank was too slow to respond to inflation risks. He said getting out of step with other central banks risks instability in output and exchange rates.  

“We were one of the first countries in the world to stop quantitative easing and to start raising our interest rates,” Orr said. “As much as we like to think we are a big important country, going alone on monetary policy in a global shock takes enormous courage. I congratulate our monetary policy committee members and our staff for doing that.”

He had “no regrets, and I will continue to have no regrets” over the bank’s monetary policy as “you have to play the cards that are in front of you at the time.”

“I regret not buying Apple shares in 2000,” Orr said.

It was another testy exchange with opposition politicians on the committee, who have pressed Orr over surging in house prices during the pandemic and now the fastest inflation in more than 30 years. They have suggested the RBNZ over-stimulated the economy with record-low interest rates and was too slow to start tightening policy. It began raising rates in October last year. 

The central bank last month raised the official cash rate by half a percentage point to 1.5% and signaled further hikes to come.

The RBNZ is raising rates rapidly “because the environment has changed,” Orr said.

“We’re not playing catchup, we’re just doing monetary policy as usual,” he said. “We’ve got this.”

Asked how he intended to anchor inflation expectations, Orr replied: “by slowing demand and taking some of the heat out of the economy, and we’ll be doing that by raising interest rates.”

He said the RBNZ’s measures of core inflation “are somewhere between 3 and 4% per annum,” which was not too far above its 1-3% target range. 

“Given the nature and scale of the economic shocks we’ve come through, I am positively surprised how well we have come through.” The bank “cannot do anything about global oil prices,” he added.

Orr said he doesn’t see stagflation as a core risk because, unlike in the 1970s, central banks globally have operational independence and are focused on delivering price stability.

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