Who is the new Reserve Bank Governor?

Liam Dann, NZ Herald,
Publish Date
Sat, 24 Mar 2018, 6:42AM
Initial reaction to Adrian Orr's appointment as Reserve Bank governor reflected confidence in his credentials. (Steven McNicholl)
Initial reaction to Adrian Orr's appointment as Reserve Bank governor reflected confidence in his credentials. (Steven McNicholl)

Who is the new Reserve Bank Governor?

Liam Dann, NZ Herald,
Publish Date
Sat, 24 Mar 2018, 6:42AM

It seems that everyone on the local business scene has their own story about Adrian Orr.

Almost invariably, it's a tale of how memorably funny he was in a public speaking role.

New Zealand's next Reserve Bank governor arrives with a reputation for quick wit and straight talk.

That has raised expectations about the extent of the change he might bring to the position.

There's no doubt he 'll offer a fresh cultural perspective: Orr has Cook Island heritage and grew up in a working-class Taupo community.

His Pacific ancestry is through his grandfather No'oroa George, who was born on the island of Atiu and moved to New Zealand in the 1930s.

The family settled in Taupo. His father was of Irish descent, but died when Orr was just 13.

As a result, he grew up more closely connected to his Cook Island family and his connection to Polynesian culture -including his local iwi - is genuine and deep.

In an interview with E-Tangata magazine in 2016, Orr describes knocking around the Taupo region with a group of mostly Maori, Cook Island and Tokelauan mates - and having a bit of reputation as a bunch of "scallywags".

Former Labour MP Winnie Laban, now an assistant vice-chancellor at Victoria University, describes Orr as something of a "poster boy" for Pacific Island youth.

Laban (who's New Zealand born, of Samoan heritage) worked with Orr on the Ministry of Business and Economic Development's Pacific Strategic Think Tank but has known him for many years.

"He's shown that our children can be there too, that our young people can also be aspirational. And he's always been the go-to guy for a lot of the Pacific community on matters of economics and finance. There's a wonderful generosity of spirit, where people go to him for advice.

"He's a pragmatic person as well, but always has New Zealand and the Pacific at heart."

There are also high hopes that Orr's strength as a communicator will bring a fresh approach to the way the Reserve Bank delivers its messaging - which critics sometimes accuse of being opaque.

Westpac chief executive David McLean describes Orr as a "super intelligent operator" and a "great communicator".

"Commentators won't have difficulty parsing his prognostications as governor to work out what he really means," he says.

"As a leader, he is inclusive and will likely champion more diversity within the Reserve Bank," says Christina Leung, principal economist at the NZ Institute of Economic Research (where Orr worked in the 1980s).

"His communication style is very straight up, which may provide markets with more certainty over the Reserve Bank's monetary policy outlook," she says.

But there is some risk of overplaying the expectation that Orr will be a wildly different kind of central banker.

When he starts in the job on Tuesday, he will begin his third stint at the Reserve Bank.

From 1997 to 2000 he was the RBNZ's chief manager of the economics department, before departing to become chief economist at Westpac.

He returned as deputy Reserve Bank governor in charge of economics from 2003 to 2007, before taking on the chief executive role at the NZ Super Fund.

Along with earlier roles at Treasury, the OECD in Paris and as chief economist with the National Bank, Orr's CV points to someone with a strong pedigree in mainstream economic thinking.

"One thing that most Kiwis won't be aware of, is the extent to which Adrian personally is looked up to as a thought leader by the world's sovereign wealth funds, most of which are many times larger," says Westpac's McLean.

Under Orr's watch, the NZ Super Fund has certainly had an amazing run.

It was worth about $11 billion when he took over at the start of 2007 and is now worth more than $38b, despite the government ceasing to make new contributions in 2008.

In the past five years it has returned 16.2 per cent per annum - a stellar result even with the fair winds of a global bull market.

Orr has also shifted the fund into a responsible investment framework - moving it out of stocks in tobacco and weapons companies, and reducing its exposure to carbon emissions.

He did find himself the centre of some public controversy over his salary - close to $1 million - and his annual pay rises.

Orr was effectively caught in the crossfire of a stoush between the State Services Commission and the Guardians of the Super Fund over salary reviews.

Last year, Prime Minister Bill English waded in, publically criticising the size of the increase.

It's not something Orr has ever been keen to comment on, although others note that he has never been driven by financial reward.

"The publicity around his salary has been unfair," says Laban. "I know from people in finance that Adrian could go overseas and earn four or five times more. He could have chosen to go and earn heaps of money elsewhere but he's passionate about staying home in our small country and building our own economic sustainability."

Orr genuinely cares about finding outcomes that better the people of NZ, says McLean.

"That care is I think shown even by his willingness to take on this [RBNZ] role - including such unpalatable features as taking a pay cut and moving back to Wellington - which is a sign that he is driven by higher motivations."

Whether Devonport-based Orr is happy about the shift back to Wellington is unclear, but the new job will certainly involve a pay cut - as governor his salary will probably be closer to $700,000.

Regardless, one thing nobody could deny is that Orr has worked hard all his life.

His father, a builder, died just as he was finishing construction of a motel, Orr told E-Tangata. He, his mother and two brothers carried on and ran the motel right through his secondary school years. He would work as a plumber, sewage pipe layer, short order cook and truck driver.

All which makes the point that Orr has lived a bit. He's not an ivory tower economist and has deep roots into communities that can sometimes seem marginalised by mainstream economics.

But he got himself to Waikato University, where he studied geography and economics.

He then headed to the UK where he taught and studied for a Masters degree.

Despite a self described passion for the social and human end of economics, he clearly excelled at the technical stuff.

You don't get to be RBNZ governor unless you've written academic papers like: "Inflation uncertainty, inflationary shocks and the credibility of counter inflation policy".

If nothing else, that paper – published in the European Economic Review in 1991 - serves as a reminder that Orr has been thinking deeply about the nature of inflation for a long time.

It is worth noting - with the Reserve Bank in the middle of a two-part review - that Orr took quite a conservative stance on the last review in 2001.

Before Orr takes over on Tuesday, a new Policy Targets Agreement will be signed which will likely add employment as a policy target and formalise committee-based decision making.

In 2001 he was sceptical of about the value of committee-based decisions on monetary policy, as it was proposed at that time.

Writing as Westpac chief economist, he penned an op-ed for the Herald that defended the status quo, arguing that having external members in a monetary policy committee would "simply open greater conflicts of interest, political influence and introduce non-experts".

It has been almost 20 years since Orr made that argument – times change and monetary policy has faced some big challenges since the GFC.

As a chief economist at both Westpac and National Bank, Orr was also in the business of publishing strong viewpoints.

Other more recent op-eds for the Herald have tackled the need to adopt a more inclusive capitalism, the Super Fund's moves towards ethical investment and the importance of valuing and developing New Zealand's Pacific workers.

"A more inclusive system, with greater participation and democratic buy-in is also one that is more stable and less risky," he wrote in 2015.

It's not hard to see how his world view would have appealed to Labour Finance Minister Grant Robertson, who ultimately signed off on his appointment.

But Orr's stance on the 2001 policy review highlights the fact that a socially conscious approach to economics and orthodox views on central banking are not mutually exclusive.

We should expect Orr to take some time to settle in at the RBNZ.

His first monetary policy statement is due in May but, barring a major economic meltdown, most economic forecasts suggest there will be no need to move the official cash rate for at least a year.

Monetary policy commentators will hunt for signs and speculate about whether Orr is a "hawk" or a "dove".

Hawks lean towards keeping inflation low - lifting interest rates sooner to keep monetary supply tight. Doves take a more expansionary approach, leaving rates lower to boost other parts of the economy.

"Adrian will be very adaptable to the circumstances," says ASB chief economist Nick Tuffley, who worked for Orr twice in his career – once at the Reserve Bank and again at Westpac.

Tuffley thinks the hawk/dove speculation is premature - especially with the current review likely to reset the broader framework for the RBNZ.

"The key thing is that whatever message he's wanting to get across, he'll get it across very well," he says.


At 9am on Monday morning, Adrian Orr and Finance Minister Grant Robertson will sign the Reserve Bank's new Policy Targets Agreement (PTA).

A new PTA is negotiated every time a governor is appointed or re-appointed. It sets out specific price stability targets. In other words, what level of inflation is desirable in the economy — as something on which to base policy decisions.

The current PTA targets annual increases in the Consumers Price Index (CPI) of between 1 and 3 per cent "on average over the medium term", with a focus on keeping future average inflation near the 2 per cent target midpoint.

But Monday's statement will be different, as it will reflect the new Government's review of monetary policy, and is likely to see employment added as a policy target for the Reserve Bank.

The agreement is also likely to see the introduction of a committee-based approach to making decisions.

What isn't clear yet is how much weighting employment will be given — relative to inflation — and whether the committee will include people from outside the bank.

These issues will determine just how radically different the new Government's approach to monetary policy is.