The broken Reserve Bank

Bryce Wilkinson has published a report for the NZ Initiative detailing all the problems at the Reserve Bank. It is a somewhat depressing read as the Reserve Bank used to be one of the most respected central agencies, and it has a vitally important role.

Bryce’s report covers many different issues. I’ll try to summarise the major ones here:

• Ignored warnings in 2021 about looming high inflation
• Outcomes have been inflation 2.5 times higher than the agreed range, volatile house prices and a $9 billion loss on their asset purchase programme
• RBNZ forecasts of inflation were constantly wrong. For example in May 21 they were forecasting 1.5% inflation for June 22, which was 7.3%, and their current GDP forecast was for +0.7% and the actual was -0.6% which is a huge miss.
• A strong personal agenda by the Governor on climate change, diversity and ethnicity
• A huge turnover in leadership roles at the RBNZ
• Only two of the nine governors (average salary $604,000) at the Reserve Bank have an academic qualification in economics
• Only 32 staff at RBNZ are economics staff, less than in 2013, and despite a near doubling of overall staff
• HR staff have gone from 5 to 24 and comms staff from 6 to 24.
• The Governor’s personal office has gone from six to 32 staff
• Overall staff numbers since 2017 at RBNZ have increased 80% while in Australia only up 4%
• Only the Chair of the RBNZ Board has any economic expertise
• At least seven former senior staff (including two Governors) have publicly criticised how the Reserve Bank is operating. Up until five years ago such criticism from former staff was almost unheard of

I remind readers that the Minister recently reappointed the Governor over the objections of the Opposition. So the person to blame is not the Governor, but the Minister.