Wheeler calls on BNZ boss to rein in top economist

The retiring governor believes the BNZ approach is damaging to the Reserve Bank and the financial market.

Reserve Bank governor Graeme Wheeler called on BNZ chief executive Anthony Healy to rein in his top economist after taking umbrage at the language used in the lender's preview of the latest monetary policy statement last month.

Mr Wheeler, who is to step down as governor on September 26, wrote to Mr Healy on May 11, the day the MPS was released, saying a preview written by BNZ head of research Stephen Toplis called into question the Reserve Bank's integrity by saying it would be "negligent" not to admit it had a tightening bias, expressed "through an explicit expression of rate increase(s) in its published OCR track."

Mr Wheeler's letter, and a reply from Mr Healy, were released under the Official Information Act. Mr Wheeler's letter describes a back story, suggesting he reached out to Mr Healy after failing to bring Mr Toplis to heel. It says Mr Wheeler's deputy governors had individually approached someone (the name is redacted) "to convey their concern at the personal nature of the criticism being expressed by the BNZ in its written publications."

"When this failed to address the situation I met with you and passed on examples of the material," Wheeler wrote. "I mentioned that the BNZ approach was damaging to the Reserve Bank and the New Zealand financial market, and the personal nature of its tone was contrary to that of other banks."

In the event, the Reserve Bank statement last month was, as economists at ANZ Bank New Zealand put it, "aggressively neutral."

The Reserve Bank is the regulator of New Zealand's banks and is the issuer of bank licenses that allow them to operate. Its far-reaching powers include the levels of capital they must hold.

Mr Healy's May 16 reply says BNZ "will be reviewing the contents of the BNZ Markets Outlook and the concerns expressed in your letter in detail."

"Once that process is complete, I would appreciate the opportunity to have a call with you to discuss the outcomes of that review," Mr Healy wrote.

The BNZ's economics team, led by head of research Toplis, hasn't pulled its punches in its assessment of the Reserve Bank and its management and communication of policy.

One such instance was in response to a speech last year when Mr Wheeler said he didn't need to take a "mechanistic" approach and only take headline inflation into account when setting policy. Mr Wheeler's speech had wrong-footed the market when rising inflation expectations led to a cut in the OCR, a move Mr Toplis said at the time showed a "galling" lack of consistency. It was "the second time in two years that we have listened to a speech by Graeme Wheeler and been stupid enough to pay attention to it," he wrote at the time.

Mr Wheeler took exception to wording in the MPS preview last month that "implies that the Reserve Bank would not exercise reasonable care in the discharge of its responsibilities."

The May 8 note predicted the central bank would keep the official cash rate at 1.75% to avoid getting "egg splattered all over its face" and questioned whether the run of economic data was enough to force the Reserve Bank to adopt a tightening bias, saying "it would be negligent not to express this through an explicit expression of rate increase(s) in its published OCR track."

In his letter to Mr Healy, Mr Wheeler said it was "unacceptable" to question the Reserve Bank's integrity while "fundamentally misrepresenting" how it sets monetary policy.

"The Reserve Bank makes a considerable effort to explain its monetary policy processes, engage with market participants, and communicate clearly its monetary policy stance," Mr Wheeler wrote. "Given these efforts, I would have expected BNZ economists to be more accurate and careful in their choice of words.

"I would also expect that the editorial quality assurance process (and any legal sign-off involved) would have identified that an accusation of negligence is inappropriate in a public document distributed by BNZ."


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