On the money: Only sycophants need apply for Reserve Bank governor's job

By Michael Coote

Friday 31st May 2002

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MICHAEL CULLEN: Has no one but himself and his colleagues to blame

The Reserve Bank recently emailed me an unsolicited job advertisement for the role of governor.

I thought it was kind to add me to the list of potential candidates. In fact I was flattered.

But I have my reservations about sitting in the monetary hotseat under Finance Minister Michael Cullen.

Dr Cullen was part of the Labour cabinet that created the Reserve Bank Act 1989 and, although he has since criticised the role of the Reserve Bank and its former governor Don Brash, he surely bears responsibility for the act's existence and effect on the economy.

Notoriously, when a rookie finance minister back in 2000, he sent a public "please explain" note to the Reserve Bank when Dr Brash hiked interest rates.

The public ticking-off delivered by Dr Cullen was poorly received by financial markets, which could explain his subsequent reticence to express an opinion on interest rates settings.

Dr Cullen redoubled his responsibility for the act when the incoming Labour-Alliance coalition rewrote the Reserve Bank's inflation-fighting brief - the Policy Targets Agreement - to include a requirement that the bank take the state of the real economy into account when setting interest rates and in particular that the bank pay attention to the risk of a rising exchange rate to the export sector.

It must be with a sense of déjà vu that Dr Cullen is now faced with a combination of rising interest rates driving a lift in the kiwi at a time the economy is liable to slow down.

He is lumbered with precisely the conditions his rewrite of the bank's objectives was supposed to avert.

It is hardly surprising, therefore, that Dr Cullen has now flagged that he wants Dr Brash's replacement to pay closer attention to the PTA in applying interest rate policy.

He seems to be a different man from the firebrand of 2000 in making his concerns known in more moderate language.

But the message is there nonetheless. Whoever fills Dr Brash's shoes is intended to be more amenable to toeing the line.

When the government squeals about a rising exchange rate as it is doing now, the new governor will lend a sympathetic ear.

Dr Cullen says as much when he can state that, "I would expect somebody who would be able to implement the Policy Targets Agreement consistent with the government's overall intention in terms of the Policy Targets Agreement."

We are being treated to a statement of the obvious from the job description which could have the intended effect of influencing the choice of Dr Brash's successor.

All of which may lead to concern that we can expect a slushy, politicised monetary policy under a new governor. Dr Cullen's comments appear to be a signal about the sort of person he wants chosen to succeed Dr Brash. Dries need not apply.

At a stroke a whole lot of potential candidates have received a message as to their suitability or otherwise.

Although Dr Cullen stressed he was not trying to "entrench" on the independence of the Reserve Bank, he is the one who will be driving conformance of the incoming governor with the PTA.

Indeed, if Dr Cullen is so concerned about the integrity of the PTA and knows so much about implementing monetary policy, then why does he not apply for the governor's job or is a glove puppet preferable?

Although Dr Brash's sympathies with the right wing of the National Party have long been well known, few but determined Reserve Bank baiters like Deputy Prime Minister Jim Anderton would have accused him of dickering with interest rates to help National or hinder Labour.

One would hope any new governor would be equally apolitical in pursuing monetary policy but doubts are raised by Dr Cullen's public remarks in an election year, particularly when those remarks were coupled with worry expressed over his longstanding bogey of a rising exchange rate.

Of course, Dr Cullen may wish to deflect attention from the directly influential role his own government has played in failing to address the inefficiencies in the economy that have led to rising inflation, increased interest rate and a stronger kiwi, including a tight labour market caused by resistance to reforming the welfare system sufficiently to get the able-bodied unemployed back to work and the loading of additional costs on businesses through supposed reforms.

Dr Cullen has no one but himself and his colleagues to blame for this impasse if he is honest about it.

His implicit attempt to stick it to Dr Brash's style of handling of monetary policy is a political jibe that leaves the unpleasant impression that any replacement may be soft on inflation to suit the needs of the government of the day.

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