Grant Robertson was so concerned about the potential to be lumped with a Reserve Bank Governor he didn’t want that one of his first actions when he was sworn in on October 26 was to have a quiet chat with the chair of the Reserve Bank Board, Neil Quigley.
The Reserve Bank was most of the way through selecting a Reserve Bank Governor to replace the retiring Graeme Wheeler and had closed applications on July 8. The risk was that the board, which was appointed by Bill English, would foist a status quo selection on Robertson who could obstruct the new Government’s plans to reform the Reserve Bank Act and the way the central bank runs monetary policy.
“One of the things I did was speak to the chair of the board when I first took up this role to ensure that the process of appointing the Governor included the candidates being aware of the direction that we were going in and to assess their ability to implement that direction,” Robertson said.
“I’ve been assured by the chair of the board that Mr Orr is in a position to do that and that he will be able to manage a period of change well for the board, and I’ve accepted those assurances,” he said.
The Government has already begun a review of the Reserve Bank to give it a dual mandate that targets both maximising employment as well as keeping inflation stable and low. Robertson also wants the bank to move to a full monetary policy committee system where members from outside the bank are involved and the bank issues minutes — a system well established in Australia, Britain and the United States.
The new Government wanted a Reserve Bank Governor who knew enough about running a central bank and a very large balance sheet, as well as one sympathetic to its aims to emphasise full employment and better living standards, in addition to keeping inflation low.
Robertson said Orr was his top pick for that role and also popular with financial markets and the business community.
Robertson told a post-cabinet news conference that Orr, who has previously served as Deputy Reserve Bank Governor, was his top choice and would be popular with financial markets. The New Zealand dollar rose more than half a cent to a one-week high over 69 USc by early evening after the 4pm announcement.
“This will be an appointment that will be welcome right across the financial sector. Mr Orr is highly regarded. He does have expertise in a technical sense from his time at the bank previously, and is obviously a very well respected CEO as well,” Robertson told the news conference.
“We’re delighted about the appointment and if the markets are pleased that’s a good thing too.”
Asked if Orr was at the top of Robertson’s list of possible candidates, he said: “Yes he was. He is a person who I have long held in high regard for the work that he’s done at the Super Fund and when I thought about who should do the role, he was there.”
“Clearly we have an open mind as to any other candidates that would have come forward and obviously the board felt the same way and made a unanimous recommendation about Mr Orr,” Robertson said.
A 40 percent pay cut and a move to Wellington
However, he acknowledged Orr would have to take a pay cut of almost 40 percent. Orr will also be moving from Auckland to Wellington, where the Reserve Bank is headquartered.
Orr was paid $1.22 million for the year to June 30, 2017 as the CEO of the NZ Super Fund, up 15 percent from the previous year and up 42 percent from the 2014/15 year. The size of the increases drew criticism from the then-Finance Minister Bill English and the State Services Commission.
Robertson said the Reserve Bank board chairman had said Orr would be paid within the current band of pay for the current Reserve Bank Governor. The Reserve Bank’s annual report for 2016/17 shows the Governor was paid in a band from $850,000 to $860,000, although this included $101,000 in cash for accrued leave, meaning the regular remuneration for the Governor was around $755,000.
The NZ Super Fund, which manages $37 billion, said Orr would move to Wellington for the role.
Robertson said he believed Orr had been part of the appointment process before the Government was appointed. He said Orr had been the first candidate put forward by the board, either formally or informally.
“He sees it as a great honour to serve his country in this role,” Robertson said.
Robertson said he believed Orr would be a good ‘change manager’ for the Reserve Bank as it adjusted to a new Policy Targets Agreement with Robertson and prepared for changes to the Reserve Bank Act.
“He has run the Super Fund extremely well. It is one of the most successful sovereign wealth funds in the world. The experience he got working in the real economy will be very useful as we go down the path of change.”
Robertson later reiterated that the first Policy Targets Agreement would include the bank focusing on maximising employment as well as price stability. It will be signed before Orr takes up his appointment on March 27 and include work being done by a group reviewing the Reserve Bank Act.
“The review group is getting underway and are beginning to look at what kinds of language could be included in the Act. We’ll use that to reflect that in the Policy Targets Agreement,” Robertson said.
The Bankers Association welcomed the appointment of Orr.
“New Zealand is lucky that we have someone of the calibre of Mr Orr available and willing to do this job. He is extremely capable and at the same time grounded in the real issues that matter to New Zealanders,” Association chair and Westpac CEO David McLean said.
“He is very well thought of within the worlds of economics and finance within New Zealand, and in his most recent role as CEO of the New Zealand Superannuation Fund led that organisation to a position of respect among global sovereign wealth funds which was out of all proportion to its size,” he said.