RBNZ's Adrian Orr pledges to address central bank's lack of open dialogue

Adrian Orr at his first monetary policy statement MPS press conference as Reserve Bank governor. Photo by Lynn Grieveson

Reserve Bank governor Adrian Orr greeted journalists in English, Maori and sign language and pledged to address a lack of open dialogue at the central bank in his first press conference at the helm.

Orr said he has taken up the mantle in a "sweet spot" and that today's decision to keep rates on hold at 1.75 percent was a piece of cake. "It has been the easiest decision I have had to make for 11.5 years. Easy in the sense that we are in a good spot. We can keep the OCR where it is for a considerable period of time. The hard part about it is what to do next and when," he said.

The benchmark interest rate has been at a record low since late 2016 due to a lack of inflationary pressures.

The central bank stuck to the same script in today's monetary policy statement, saying it expects to keep the OCR at "this expansionary level for a considerable period of time" as "this is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation."

The forecasts were downgraded slightly with inflation seen returning to 2 percent - the midpoint of the RBNZ's 1 percent-to-3 percent target range - in December 2020 versus a prior forecast of September 2020. The RBNZ also predicts the OCR will rise to 1.9 percent in December 2019, having previously forecast an increase in June 2019. A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 percent.

Orr was emphatic in saying the bank's communication will change: "This institution has been suffering from a lack of open dialogue about what we have been doing for a very long time and instead we have let the banks and/or commentators own that space and not us."

The challenge is "to speak in plain as opposed to in a high tech scientific language that only around half a dozen people actually understand and even less are interested in. We need to have a richer dialogue," he said. "We want to make sure we are communicating very clearly to a wider audience rather than to half a dozen retail bank economists," he said.

Orr made reference to a recent survey about the bank where journalists had been critical about the bank's lack of openness and said: "we hear that loud and clear."

Regarding other challenges, he said the new policy targets agreement includes a focus on maximum stable employment (MSE) and there is a "real challenge around understanding what MSE is and how we can best contribute to it".

Today's statement marks the first time the central bank must officially take employment into account after Finance Minister Grant Robertson and Orr signed a new policy targets agreement adding the goal of "supporting maximum levels of sustainable employment within the economy" to the existing goal of price stability.

The Reserve Bank interprets the term to mean the highest use of labour resources that can be maintained over time. It noted, however, the Reserve Bank does not have a specific numerical target for employment, unlike for inflation. Rather, it monitors a wide range of labour market indicators to form a holistic assessment of whether the economy is currently operating at MSE.

Among other things, the central bank wants better data. "We need new data, we need improved data," said assistant governor John McDermott, referring to good high-frequency payroll data and in particular information about exits and entrances into the labour market and job-to-job transitions.

Orr said he would also focus on a smooth transition into a committee decision-making structure.

He would not be drawn on his thoughts on the New Zealand dollar, despite the fact that the trade-weighted index at 72.73 is below the 74.1 average the central bank's forecasts have it at in the monetary policy statement in the current quarter.

When asked if he was relieved about its recent fall he said "relieved would be an emotion".

"I don't have emotions about currencies".

The kiwi dropped after the monetary policy statement was released and recently traded at 69.32 US cents as at 1.10pm from 69.83 cents just prior to the release at 9am.