Professor Robert MacCulloch: Did the Reserve Bank massage its OCR forecasts to help Labour keep power?

Did the Reserve Bank massage its OCR forecasts to help Labour keep power? (we've found evidence pointing to it)

Last year, in the lead up to the national election, Governor Orr said in May 2023 that he was "very confident" there would not be further interest rate hikes, stating the Reserve Bank had done enough in terms of rate rises. He was interviewed by Mike Hosking on Newstalk ZB on the subject of his rampant confidence in the economy - as this was a highly sensitive matter in Election Year. Hosking also spoke at the same time to former RBNZ Governor, Don Brash, who expressed severe doubts, saying, “[But] the governor indicated it [the OCR] would not be going higher, and that was a surprise both for the market and me personally.”

The RBNZ held onto its "the-OCR-has-peaked" line in its Monetary Policy Statement (MPS) in August 2023, just over one month before the General Election that was held in October. That Statement enabled Finance Minister, Grant Robertson, to issue a Beehive Press Release in September, weeks before the election, saying, "The Reserve Bank is indicating interest rates have peaked .. ". The claim was absolutely vital for PM Hipkins & Robertson's hopes of clinging onto power. It enabled them to argue to millions of Kiwis that the interest rates on their mortgages would fall, persuading them to vote Labour. Enough to swing an election.

Except a short time later, barely four weeks after the October 2023 election was held, which the Nats won, the Reserve Bank dramatically reversed itself. Five days after the signing of the Coalition Agreement on 24 November 2023, the Bank released a new Monetary Policy Statement on 29 November. Instead of forecasting a falling OCR, it forecast a rising OCR. The graph below, obtained from the RBNZ's own data, reveals an OCR projected to rise nearly 25 basis points (from around 5.5% to 5.7%) over the coming year, leading to more potential mortgage rate rises. Had that graph been known about just weeks earlier, then the election result probably would have resulted in a far larger majority for National, since it is lower income earners who would have been most scared by the prospect of higher rates.


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If it looks like a partisan RBNZ that favored Labour-Greens, walks like a partisan RBNZ that favored Labour-Greens, and quacks like a partisan RBNZ that favored Labour-Greens, then it probably is a partisan RBNZ favoring Labour-Greens.

Sources:
https://www.nzherald.co.nz/nz/reserve-bank-ocr-rises-vs-high-inflation-governor-adrian-orr-says-hes-very-confident-there-wont-be-further-interest-rate-hikes/7W3ETPDU55F6TMNNHEGBAOHP7Q/
https://www.downtoearth.kiwi/post/the-rbnz-plays-politics-to-help-labour-over-the-line-in-election-2023
https://www.rbnz.govt.nz/-/media/project/sites/rbnz/files/publications/monetary-policy-statements/2023/november/mpsnov23.pdf
https://www.pressreader.com/new-zealand/the-press/20240525/282054807152684
https://www.nzherald.co.nz/business/ocr-rates-to-rise-markets-braced-for-todays-big-call/5RM7NGP72JCVPPKUN6T5AW6WRM/
https://www.beehive.govt.nz/release/there-no-recession-nz-economy-grows-nearly-1-percent-june-quarter

Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.