Professor Robert MacCulloch: Here's Proof that Governor Orr Mislead Parliament's Finance & Expenditure Committee about the OCR Cut.

Yesterday there was a commotion about the unexpected cut in interest rates by the Reserve Bank. It marked a departure from the Bank’s statements a few months ago in May, when it raised the possibility of further hikes. Infometrics Chief Brad Olsen had previously said “heads should roll” if a cut happened this week, given the economy had progressed much as the Reserve Bank was expecting when it forecast no cut until 2025. So when a cut was delivered this week, Olsen accused the Bank of the ‘biggest flip-flop ever’.

In response to a question along these lines by Parliament's Finance & Expenditure Committee, Governor bristled at the accusation. “I can’t give air time to that comment,” he said. “No, well it’s just wrong, that’s why [I won’t comment]. So I won’t bother .. there’s no U-turn. I will quote [the Bank’s July comments]: ‘The extent of this restraint will be tempered over time consistent with expected declines in inflation pressures’ .. If people can’t understand what that means, I’m not sure if they should be commentating,” he concluded.

There's a simple way to prove whether Orr misled us, or whether it's Olsen who should pipe down as a "commentator", being incapable of "understanding" what anything "means", to quote the Governor. If the OCR cut was "consistent" with what the market had "expected", as Orr said, there would have been no reaction in exchange rates when it was announced. But there was a reaction - a big one. There was a dramatic fall, shown in the NZD-USD exchange rate graph below, at the exact time at 2pm on 14 August when the OCR was cut:


Click to view

Bloomberg news reported that "NZ’s central bank cut interest rates, embarking on an easing cycle much sooner than previously indicated". The NZ Herald referred to the cut as a "surprise". The RBNZ Governor's interpretation of this reaction is that our MPs, the Kiwi public and the world, not just Olsen, are ignorant & incapable of "understanding what [he] means". We're all idiots, apart from him. How a Central Bank Governor can be disparaging about the intelligence of the people of a nation & keep his job beggars belief. He told us he was "engineering a recession" - turns out he was wrong on that count also. He's engineered three recessions and caused untold hardship. He engineered our high inflation by printing $50 billion of cash. He swore inflation would not follow, telling Bloomberg "stagflation" was a thing of the past: "The fear of the 70s, the 80s, stagflation, it is such a different world [now]", he said. Everything he's predicted, he's predicted wrong. Everything he's done, he's done it wrong. How long can New Zealand endure this madness?

Sources: 

https://www.nzherald.co.nz/business/ocr-top-economist-brad-olsen-accuses-reserve-bank-of-biggest-flip-flop-ever/DYZPQXKMMRDK7J52OYYEVB5WUQ/?ref=readmore
https://www.msn.com/en-nz/news/other/just-wrong-reserve-bank-governor-adrian-orr-hits-back-at-u-turn-criticism/ar-AA1oPaZt

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.