Two high-profile Reserve Bank appointees have resigned this year, well ahead of their terms ending and amid ongoing concerns with the cost of living – but the Prime Minister says it’s “not unusual”.
Christopher Luxon’s Finance Minister Nicola Willis released a statement on Friday announcing chairman Neil Quigley’s resignation, saying it was “the appropriate time for him to hand over” but, soon after, told RNZ she would have demanded his resignation had it not been offered.
Quigley’s resignation stems partly from his mischaracterisation of the resignation of the central bank’s governor Adrian Orr in March.
And, despite the Reserve Bank’s statutory independence, top politicians are continuing to offer their own opinions on what it should be doing.
They are, of course, following the example of Luxon himself – who maintains that the situation is not a mess, that the RBNZ has “incredibly strong and experienced governance”, and “disagree[s] completely” that its reputation has been damaged.
If you’re wondering what on Earth is going on, the whole saga is laid out below.
Orr not to be
Controversy has surrounded the resignation of the former Reserve Bank Governor Adrian Orr.
Orr led the RBNZ from 2018, through the Covid-19 pandemic, and – despite significant criticism from National and ACT ahead of the 2023 election – continued in the role until early this year.
Orr’s resignation on March 5 came just a day before he had been expected to open an international economics conference being hosted by the RBNZ, so when then-board chairman Neil Quigley at the time said it was for “personal reasons”, speculation about what that could be was rife.
Willis said she was not going to “characterise the reasons” but she had been aware for a few days of discussions between Orr and Quigley about a possible resignation, and said questions about that were for the board to respond to.
Her previous criticisms in opposition of the Reserve Bank’s handling of the pandemic highlighted a difference of philosophy on how to approach fiscal strategy.
The ACT Party has also been particularly critical of Orr’s style.
Orr also championed the approach requiring the banks to hold more capital – in case of financial shocks like the 2008 global financial crisis – which the central bank is now looking to reduce in a move recommended by a government-led committee of MPs and celebrated by the coalition.
Quigley held a media conference later in the day, but his explanation did little to quell the speculation.
He said it was not an issue of performance, conduct, or policy, and acknowledged there were some discussions about the central bank’s funding agreement with the Government, but framed it as a decision Orr had come to after completing his work.
“He’s achieved a great deal that he set out to do when he took the job, we’ve been through a lot, not just the pandemic, but all of the changes the bank has been through over Adrian’s term as governor,” Quigley said.
“So Adrian feels that he has done the job and he has inflation under the target range and he feels positive about that.”
Deputy Governor Christian Hawkesby replaced Orr as Acting Governor.
A permanent appointment to the role is yet to be announced.
Mixed messages
However, Official Information Act documents later revealed Orr’s departure was largely a result of his disagreement with the board over the Reserve Bank’s funding.
The RBNZ had last September bid for more than $1b of government funding over five years, but the Treasury advised Willis it would not be good value for money.
Orr wrote a letter to the board in late February.
A timeline released by the Reserve Bank shows Orr initially met with Quigley and Treasury officials on February 20 about his concerns, then another meeting on February 24 – this time with Hawkesby and Willis also attending.
At the meeting, he expressed concerns about the level of funding needed and said he would be unable to perform his duties given the uncertainty in funding and lack of trust between the parties.
The meeting that exposed emerging cracks at NZ’s banking regulator, watch on TVNZ+
Orr on February 26 wrote to the RBNZ board saying the ball was in their court over the “impasse” between them, and the next day agreed he would remain out of office – his duties to be filled by Hawkesby.
Orr and Quigley seemed to be particularly at odds, both hiring lawyers to negotiate Orr’s exit agreement.
Subsequently released documents noted this included confidentiality obligations.
Documents also showed his resignation was brought forward over concerns rumours of it had leaked, and that he had been willing to still attend the conference and to speak about his resignation.
Clearly, that never happened.
With Orr gone, the RBNZ on March 14 bid for a much lower amount of $786m in funding; Willis in mid-April confirmed about $776m in funding – 8% more than the 2020-25 period.
Quigley opposed details of the February 24 meeting being released by Treasury, saying releasing the information would destroy goodwill between the central bank and the Treasury.
He said he was shocked the Treasury took minutes of the meeting without telling him or the RBNZ and an RBNZ lawyer advised some of it could be withheld as “free and frank opinion” and “would undoubtedly inhibit future expression of opinion and the willingness of the RBNZ to meet with Treasury and MoF (Minister of Finance)”.
Hawkesby in public said he could not recall the details of the meeting.
Willis later said Treasury taking minutes was entirely appropriate.
Once the document was released, the RBNZ also confirmed the decision to do so “has not impacted on the working relationship” with Treasury.
Willis at the time expressed disappointment over the way the matter had been handled.
Independence
Amid all this controversy, pressure has been building over the response to the cost of living crisis – with Willis talking up a sit-down meeting with Fonterra over rising butter prices that amounted to little, and subsequent announcements of grocery competition interventions that critics say will have little effect.
Trump’s tariffs are continuing to affect markets, their unpredictability making things worse.
And the Government’s flagship cost-of-living measure from this year’s Budget – the Investment Boost – is seeing “lukewarm” takeup from businesses.
It was undoubtedly this kind of pressure that led Luxon to tell Newstalk ZB’s Mike Hosking he would typically meet with Hawkesby “before any of those sort of announcements happen and I can often give my views” and said he gave his “reckons and perspectives” to the Governor.
Luxon was no doubt aiming to give the impression he had the matter under control, but the Reserve Bank is expected – indeed, legally required – to act independently from the government, partially as a response to the Muldoon-era price controls.
It was something of a world leader in this respect, but the practice of independence is now widely adopted around the world.
Luxon defended himself to reporters later in the day, saying he respected that independence.
“The Reserve Bank acts independently of our government and my Government.
“We have regular meetings – Minister of Finance [and] myself with the Reserve Bank, at those we will share our respective observations of what’s going on in the economy, and we actually will air those views with each other,” he said.
“That’s important that we can do – you would expect us to do that, it’s really important that we do do that.
“They’re always very constructive, very productive conversations, they’ll be robust… but that is not directing the Reserve Bank. They will act independently,” he said.
New Zealand First’s second-ranked MP and Cabinet Minister Shane Jones’ comments on Monday morning would have only added to that.
“How do you stimulate an economy? Either you reduce the cost of [borrowing] money – that’s the Reserve Bank and, obviously, I think the Prime Mnister made a sensible remark, it should have been .75 or .50,” Jones said.
National campaigned in 2023 primarily on bringing the cost of living under control, and price increases in the past year mean the party is under pressure to show its policy is having the intended effect before next year’s election.
He was echoing Luxon’s opinion that the RBNZ should have more aggressively cut the Official Cash Rate last month to 2.75 or 2.5%, rather than the 3% it ended up with.
Luxon himself told RNZ’s Morning Report on Monday economic forecasts were showing improvements by the end of the year – pointing the blame at Labour.
“I think we’ve got a good economic plan,” he said.
“We’re following a plan. We’re having to deal with the biggest recession we’ve had for 35 years. We’re dealing with a big post-Covid hangover, probably the biggest in the world, made worse by Labour as the Treasury has identified.”
Quigley’s role as Waikato University vice-chancellor – basically its chief executive – has raised other concerns about independence.
He was revealed in September 2023 – just over a month before the election – to have told senior National MPs a medical school at the university could be a “present” to a future National government.
Quigley had received lobbying advice from former National Cabinet Minister Steven Joyce.
The Government has since confirmed it will progress with the Waikato medical school, but with less government funding than National initially campaigned on.
But between that potential conflict of interest – which Quigley has denied – and the handling of the Orr resignation, pressure was mounting for his resignation from the RBNZ with former governors and chairs alike saying he should go.
Another empty chair
Quigley offered his resignation on August 29, sending Willis a letter at 4.55pm, as she later told RNZ.
The news was distributed to newsrooms via a media release from Willis at 5.49pm, making newsrooms scramble to report what had happened ahead of the 6pm news – on a Friday, when audiences are reduced.
Quigley had served on the board for 15 years, with nine as chairman. His second term had been set to end in July 2026.
“Mr Quigley has decided that having overseen a number of key workstreams for the Bank, now is the appropriate time for him to hand over to a new Chair,” the statement said.
However, Willis decided not to fall into the same trap Quigley himself had – telling RNZ soon after that she “expressed to him that my concern was that the bank’s reputation was being impacted” over the handling of the release of information about Orr’s resignation.
“He agreed with me that that was a serious matter, and that is the context in which I received his resignation… if he had not offered his resignation, I would have asked him for it,” she said.
Willis was still expressing confidence in Quigley as recently as late July.
Willis washed her hands of the matter, suggesting she had little involvement in Orr’s resignation or the handling of it – despite having been present for the February 24 meeting.
“I never saw the [February 27] letter which has now been summarised by the ombudsman and so it has been my view that it is not appropriate for the minister to insert themselves in those matters that occurred between the board and the governor,” she told RNZ.
Luxon on RNZ’s Morning Report was happy to portray a very similar stance.
He said he was “broadly aware” of employment issues with Orr, but “they’re ultimately issues for an independent Reserve Bank board”.
“We were increasingly unhappy with how that issue was handled, and I think the right decision was made by the chairman to step down, given the risk of ongoing reputational damage,” he said.
“It’s not unusual to have a chair and a CEO resign at the same time, it happens in the business world all the time.”
He said he had “total confidence” in the RBNZ and its board, and when put to him that the situation was “a mess”, he said “no, I disagree completely”.
rnz.co.nz
