RBNZ’s Bollard to Quit in September With Record-Low RatesMichael Heath and Chris Bourke
New Zealand central bank Governor Alan Bollard will quit in September, ending a decade-long tenure in which he raised interest rates to a record high before cutting them last year to the their lowest ever.
Bollard won’t seek another five years when his current term ends Sept. 25, the Reserve Bank of New Zealand said in an e-mailed statement today. The Wellington-based central bank said it will search in New Zealand and abroad for a successor.
“He was a governor through some very difficult times -- both on a very overheated, imbalanced upswing and a consequential downturn, made worse by the global situation,” said Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington.
The announcement leaves New Zealand searching for a new central bank chief during a period of slowing global growth and a sluggish domestic economy that’s motivating young people to leave in search of higher-paying jobs in Australia and elsewhere. Bollard, 60, said today he would focus on the serious economic and financial challenges facing New Zealand in his remaining eight months in charge.
The governor left the benchmark rate at 2.5 percent last week for a 10th month and said Jan. 27 the RBNZ will need to keep monitoring quake reconstruction “to judge whether the level of the cash rate continues to be appropriate.”
The New Zealand dollar was little changed after today’s announcement and traded at 82.21 U.S. cents at 2:32 p.m. in Wellington after reaching a four-month high of 82.50 cents Jan. 27. Investors are pricing in a 23 percent chance of a quarter percentage point rate reduction at the RBNZ’s next meeting on March 8, according to a Credit Suisse Group AG index.
The currency surged to 88.43 U.S. cents on Aug. 1 last year, the highest level since exchange controls were removed in 1985, as prospects for quake reconstruction and rising commodity prices encouraged traders to bet on higher borrowing costs.
Christchurch, the nation’s second-biggest city, has been rocked by quakes since September 2010, including a temblor in February that killed 181 people and closed the central business district. Most recently, an aftershock on Dec. 23 forced malls to close and delayed demolition work.
“The bank is ready to respond to ongoing developments overseas, especially in Europe, the U.S. and China, as well as domestically, particularly the Canterbury earthquakes,” Bollard said in today’s statement.
Bollard, appointed in 2002, said last week that New Zealand’s economy may expand at a slower pace this year than the 3 percent forecast in December as fallout in the Asia-Pacific region from Europe’s sovereign-debt crisis curbs growth.
“The market thinks rates are going to be unchanged right through this year,” Bollard said Jan. 27. “We’re not uncomfortable with that. As we see the numbers at the minute, it seems to be a reasonable deduction to take from that.”
The governor, who has a PhD. from Auckland University and is a former chairman of the nation’s Commerce Commission and Secretary of the Treasury, hasn’t been reluctant to share his views on the trajectory of policy.
In 2005, during a series of rate increases, he warned the RBNZ was prepared to raise borrowing costs in a “way that really hurts” as he sought to damp a spending spree that had doubled consumer debt in the past 10 years. He lifted official cash rate to a peak of 8.25 percent in 2007 and held it there until mid-2008.
Ebert said the central bank was likely to sift through New Zealanders abroad for a replacement, as well as look at the domestic scene.
The RBNZ governor is appointed by the country’s finance minister on recommendation of the central bank’s board.
Internal candidates may include Deputy Governor Grant Spencer and Assistant Governor John McDermott, Ebert said. Another name “that gets bandied around quite frequently” is Adrian Orr, a former Reserve Bank official who now heads the country’s superannuation fund, Ebert said.
During Bollard’s tenure, New Zealand’s consumer price index has risen an annual average 2.8 percent, according to data compiled by Bloomberg, at the upper end of the 1 percent to 3 percent inflation target of the central bank. The figure was inflated by a 5.3 percent increase in prices in the second quarter of 2011 from a year earlier as the government introduced a new sales tax.
Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore, said Bollard was likely to leave his post with an the economy on the mend.
“The last couple of years he’s put the appropriate emphasis on externalities when it comes to setting monetary policy,” Beacher said. “He’s going to finish on a high by taking the calculated risk that keeping rates lower for longer is the correct path to take. That will be his legacy.”
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