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A tricky read? NZ central bank chief wrong-foots markets

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A tricky read? NZ central bank chief wrong-foots markets
FILE PHOTO: Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr is pictured during an interview at the bank in Wellington, New Zealand, April 16, 2019. REUTERS/Charlotte Greenfield   -   Copyright  CHARLOTTE GREENFIELD(Reuters)
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By Swati Pandey and Praveen Menon

SYDNEY/WELLINGTON (Reuters) – Just a year into the job and Adrian Orr has managed to ruffle financial markets and economists, not exactly what the New Zealand central bank chief had in mind when he set out to demystify monetary policy.

On more than one occasion traders have been wrong-footed by the Reserve Bank of New Zealand’s (RBNZ) policy statements. And just last month Orr stunned markets again by clearly stating that a rate cut could very well be the next policy move, only weeks after going against expectations by ignoring the U.S. Federal Reserve’s sharp dovish tilt.

Many traders who spoke to Reuters in the past two weeks blame Orr for confusing the message, and some have even been critical of frequent references to legends of the indigenous Maori people in his speeches, saying they served little purpose for financial markets eager for more policy clues.

“I am extremely frustrated at the lack of communications for global market participants,” said Annette Beacher, Singapore-based macro-strategist for TD Securities.

“Since Adrian Orr has assumed the role, he’s managed to surprise the market every six weeks. We don’t hear anything from him in between policy decisions,” Beacher said, echoing similar complaints from others.

“So what do I recommend to my trading desk? I’m saying trade the data but we’re not quite sure what is going to happen at the next meeting. It’s not meant to be this way.”

Former central bank officials, including Geof Mortlock, who worked at the RBNZ from 1983 until 2007, have also chided Orr for not delivering any policy speeches since taking charge. Instead, the New Zealand-born Orr has mentioned the Maori god of forest and birds – Tane Mahuta – in many of his public speeches to explain the bank’s role in the economy or talk about culture and conduct.

“If he devoted as much time to giving clear, comprehensive speeches on monetary policy, everyone would be much better informed as to what the Bank’s thinking is,” Mortlock said.

Calm and unruffled by his critics, Orr, who took the helm in March last year, has said he doesn’t want to be seen as predictable nor for markets to simply rote-read his statements.

In an interview with Reuters earlier on Tuesday, Orr said he wants to reach out to a wider audience than just currencytraders, analysts and bloggers.

“The broad audience for this bank is the public of New Zealand. We are seen as a trusted institution but they don’t know what we do. So that is my communication challenge,” he said.

Orr also defended the Maori references in his speeches as part of the bank’s efforts to reach out to wider groups.

“Metaphors have their limits and metaphors can be over used. I get all that, but metaphors need to be introduced and created sometimes.”

In his relatively short span in the top job at the RBNZ, Orr has already overseen a restructuring in the bank, initiated a review of its legislation, undertaken a review of the conduct of banks and insurance firms, and announced a new monetary policy committee.

“To have criticism that I don’t provide on-record speeches is thin,” Orr said.


Yet markets are puzzled by Orr’s approach to signalling policy changes.

When the Fed abandoned its rate tightening plans in February, markets had expected the RBNZ to turn more dovish only to have Orr hold on to a firm neutral stance.

And, as relatively sturdy economic data backed Orr’s stance, the central bank chief caught markets off-guard yet again in late March by signalling a clear risk of a cut to the record-low 1.75 percent official cash rate.

“There are no obvious pockets of economic distress which is why the market was surprised by the easing bias last month,” said Westpac rates strategist Imre Speizer. “It’s hard to navigate the policy flip-flops.”

In August last year, the central bank unexpectedly signalled it would keep rates steady into 2020, a decidedly more dovish stance than its previous guidance. Also, between August and November, Orr introduced, dropped and then re-introduced a key policy phrase that confused markets.

Michael Reddell, an ex-RBNZ official who served with Orr on its monetary policy committee in the 1990s and 2000s, is critical of Orr for not giving a “substantive” speech on monetary policy in the past year.

“It would be unthinkable in Australia or the United States or even under previous governors here.”

Philip Lowe, the governor of the Reserve Bank of Australia (RBA), has already given two public speeches since the start of the year following on from 11 in 2018.

While a change is now in the offing at the RBNZ to make a committee responsible for policy decisions next month, rather than the governor alone, market players still believe Orr’s personal style would open up several possible scenarios for each meeting.

“The decision will be one thing but the style of the governor will be an additional overlay now,” Westpac’s Speizer said.

(Reporting by Swati Pandey in SYDNEY and Praveen Menon in WELLINGTON; Editing by Shri Navaratnam)

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