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The Rocky Horror Reserve Bank Show

In 2019, in an article for Newsroom, I argued the RBNZ had morphed from being a key institution of State of which we were proud to one that had become a threat to national well-being. "Will the RBNZ’s doom and gloom be self-fulfilling?", it was headed. Will, it certainly has been. The Bank has got its way and successfully engineered a recession.


Stuff picked up on the Newsroom story by running the headline, "Reserve Bank's 'Adrian Orr show' hurting the economy: Economist". That article included the line, "The bank's recent 50 basis point official cash rate cut, to 1 per cent, had been a risky move, MacCulloch said".


In monetary economics, Central Banks that communicate well don't shock the market. It is regarded as a significant mistake to shock markets with unexpected interest rate moves, since they throw planning into chaos. Good governors communicate transparently, which means the Bank and market share similar information and there are no surprises.


Now can you believe it? Whereas in 2019, Reserve Bank Governor Adrian Orr "bucked expectations with a shock 50 basis point Official Cash Rate (OCR) cut on August 7th", according to Loan Market NZ, today the Governor shocked the market with a 50 basis point increase in the OCR. The two events have one thing in common: "shock".


How can you explain it? Easily. The reason has little to do with economics. There appears to be a psychological need on behalf of the RBNZ Governor to be the center of attention - he has been shocking the market ever since he became Governor - forever in the news, forever in the headlines. It seems NZ is not run by Parliament any longer - inflation, unemployment, interest rates, GDP, inequality, climate change policy, competition policy - you name it - the Reserve Bank of NZ is insisting on driving all of them. It's Chief Economist is even giving speeches on productivity, seemingly forgetting that he is no longer still working at the Productivity Commission!?


The upshot is that unelected officials are in charge of most Kiwi economic outcomes now.


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