Hive News Wednesday: Spencer to hold fort at RBNZ around election; Inflation expectations jump; ACC/NZ Super Fund role in newspapers?

Deputy RBNZ governor Grant Spencer. Copyright Lynn Grieveson / Hive News

Finally, after months of speculation, the Reserve Bank and Steven Joyce confirmed yesterday that Graeme Wheeler would not seek a second term as Governor when his current five-year term ends on September 26.

The slight surprise was Joyce's decision to appoint Grant Spencer as Acting Governor for a six month period after September 26 to tide the bank over around the election. This avoids the politically difficult prospect of a new Governor starting a new five year term just three days after the September 23 election, which would restrict any new Government's ability to influence the Policy Targets Agreement or make its own choice about the new Governor.

"This will give the next Government time to make a decision on the appointment of a permanent Governor for the next five year term," Joyce said, adding he had consulted the Cabinet office about the decision to stage the six month delay.

Any change of Government would almost certainly involve changes to the Policy Targets Agreement (PTA), with Labour, New Zealand First and the Greens all wanting to change the emphasis towards employment and the New Zealand dollar, and away from a central focus on inflation.

A change of Governor or Finance Minister is always an opportunity to revisit the PTA between the Minister and the Governor, which allows tweaks without having to change the Reserve Bank Act.

Another surprise in the flurry of announcements was Wheeler's comment in the Reserve Bank statement that it was always his intention to serve just one term and then take on governance roles. That's the first time he has said that. He declined to answer the question about a second term when I asked him last year and previous permanent Governors under the current Act ( Don Brash and Alan Bollard ) have served more than one term.

His successor is unlikely to be Spencer. The Reserve Bank said it had been Spencer's intention to retire at the end of the this year (again news to the rest of us) and he had decided to defer his retirement until after the six month period as Acting Governor.

Inflation expectations jump

Tomorrow's Monetary Policy Statement and the associated public appearances won't quite be Wheeler's public swansong because there are MPSes on May 11 and August 10 and a Financial Stability Report on May 31.

But it will be a chance to answer questions about his legacy and how he expects his final six months to play out.

Ironically, just as he is leaving, it appears inflation might finally be picking up and heading back into the 1-3% target band that it has been under for most of his term.

The Reserve Bank's own quarterly survey of business managers and professionals (conducted by Nielsen from January 20-24) found average two-year-ahead inflation expectations rose to 1.92% from 1.68% in the December quarter. This was more than economists had expected and the biggest increase since a 0.3% blip up in the September quarter of 2013.

A surprise drop to a record low 1.63% in the March quarter of last year preceded a rate cut that surprised many, although the bank has been at pains to say it has been focused in recent years on the risks of a destabilising drop in inflation expectations.

However, the Reserve Bank is still expected to hold the OCR at 1.75% and signal a neutral view on monetary policy tomorrow. The bank itself forecast in November that the OCR would be on hold for the forseeable future and included a forecast that it would stay around 1.7% until the end of 2019. Most economists expect the OCR to remain on hold for the rest of 2017, with the potential for slow and tentative hikes next year. That is behind where the financial markets are at. They see the first hike towards the end of this year.

The New Zealand dollar jumped to a high of 73.7 USc yesterday afternoon after the expectations jump, but has since eased back to 73 USc.

The big question tomorrow will be whether the bank adopts any tightening bias, or whether it sticks to that expectation of a flat OCR for the foreseeable future. Some see it dropping the slight bias towards easing it had in its language around that flat OCR forecast.

"It is one of a number of developments now that make the RBNZ’s soft easing bias from November increasingly hard to justify," ANZ's Philip Borkin said.

"But as higher inflation expectations are desirable, we doubt it will be a catalyst for the RBNZ to start talking tough and resurrect a tightening bias. It is too early for that," he wrote.

ACC and NZ Super to buy into NZME/Fairfax?

One curious detail to emerge in the debate over the proposed merger between Fairfax NZ and NZME is the potential involvement of ACC and the NZ Super Fund as investors in the two dominant newspaper groups.

In two documents filed with the Commission after a public hearing in December, and now on the regulator's website, the companies argue that allowing the merger would be good for journalism, the media sector, the country's tax base and the broader stock market.

Tantalisingly, they raise the prospect of two state investment arms putting money into the merged entity, which they are now calling 'NZME2.'

An answer to a question raised by the Commission includes reference to the Accident Compensation Corporation and NZ Superannuation Fund as potential investors in quality NZ businesses - with a clear implication that NZME2 would qualify as an investment target.

In addressing the possibility of Fairfax Australia (which would be a 40% shareholder in the combined entity) selling out to an unknown buyer, the two firms said that was 'too speculative to form part' of any scenario. To emphasise this point, they said it was equally possible that, post-merger, the Government could introduce a regulatory media ownership regime.

The companies said the merger should be allowed by the Commission, as its role is to determine economic benefits not to emphasise social good, as it did in its draft determination which was heavy on the issues of media plurality, editorial independence and diversity of viewpoints.

Citing the Godfrey Hirst carpet takeover case, NZME and Fairfax argued: "Even if plurality concerns could be considered, the case law is clear that the Commission is not permitted to stand back and overlay social judgment on the authorisation framework or rely on speculation or intuition".

They criticise the draft determination's conclusion as 'abstract and imprecise.... based on limited evidence.'

The merger, set to be given the green or red light by March 15, would see almost all the country's print media under one owner and the two biggest news websites, and, in the same stable.

The companies say they face intense competition for advertising dollars from the big global platforms Google and Facebook, and uniting would position them better to compete and to preserve quality journalism.

Commission staff are still seeking information from the two applicants and from other media, prompting speculation that a delay could be sought to the Ides of March deadline - with the Sky-Vodafone merger application leapfrogging the news media merger to its final verdict.

  • Many thanks to Tim Murphy from Newsroom for contributing this piece on the NZME/Fairfax NZ merger. He has written more on the submissions over here at Newsroom.

Have a great day.