27 Jun 2012

No big changes predicted at Reserve Bank under Wheeler

7:01 am on 27 June 2012

Neither economists nor the Finance Minister expect a changing of the guard at the Reserve Bank to lead to a dramatic change in monetary policy.

Former IMF executive Graeme Wheeler has been named as the central bank's new Governor, to replace Alan Bollard who is stepping down in September.

Mr Wheeler, who was previously a deputy secretary of the New Zealand Treasury and the treasurer of New Zealand's Debt Management Office, will return from the United States to take up the position.

BNZ head of research Stephen Toplis says Mr Wheeler's experience overseas will be very useful to the Reserve Bank here.

"For the last five years and probably the next five years as well, the prudential policy, that is the supervision of the country's insurance and banking systems, will be as important if not more important than the central bank governor's ability to direct where interest rates go."

He says in that regard Mr Wheeler has a very strong prudential background. "He worked for the World Bank and led that bank's engagement with the likes of the G20, the G7 and the IMF, and he played quite a strong role in the World Bank's response to the global financial crisis".

Mr Toplis says Mr Wheeler's understanding of how the global machine works will be very, very helpful to the central bank here. "But clearly he can't ignore monetary policy and that will be a major part of his role."

Minor tweaks - Bagrie

National Bank chief economist Cameron Bagrie expects the nuts and bolts to remain in place, but says there could be some minor tweaks.

"The obvious one, which could come a little bit more to the fore, would be the use of ancillary policy instruments." Mr Bagrie says this could include using loan to value ratios as a way of mitigating housing price strength, as opposed to relying on the Official Cash Rate lever.

He says the OCR lever will always be the primary monetary policy instrument, but "maybe monetary policy does need a few more friends".

Mr Bagrie says there might have to be some subtle little tweaks to the operational framework.

No major changes - Minister

Finance Minister Bill English appointed Mr Wheeler on the recommendation of the Reserve Bank Board.

As part of Mr Wheeler's appointment, the Policy Target Agreement between the governor and the minister must be renegotiated.

The agreement spells out the bank's inflation target, and the different tools used to achieve it.

Mr English says the current agreement was signed when Dr Bollard was appointed 10 years ago, and there could be obvious lessons from the global financial crisis that need to be factored in.

But he says he does not envisage any major changes to the agreement. "We'd be looking at whether there's anything we've learnt from the global financial crisis, from the discussions since then, about the other tools the Reserve Bank can use to control asset prices or credit bubbles.

Mr English says the bank's central role to maintain stable inflation will continue.