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Monetary Policy Committee (MPC) external committee member Peter Harris responds to media questions

Mr Harris has provided answers in writing following questions from a media reporter about the Committee’s processes and his role as an external member of the Committee.

The following is Mr Harris’ personal statement.

Overarching caveat.

This is a personal, not an official statement.

The Reserve Bank of New Zealand - Te Pūtea Matua has repeatedly made it clear that it seeks to be transparent, open and accountable.

It also operates in an environment where vast amounts of money trade on sometimes small margins, where sensitive information can create disproportionate gains and losses.

All communications need to balance those potentially conflicting pressures.

The best way of reconciling them is defined in the “Charter” that is provided for in the Act.

Members of the Monetary Policy Committee are not free agents. When we accept our warrants, we become, for better or for worse, statutory appointees, bound by the law that authorises our actions and sanctions our discretions with respect to our roles.

The media questions are bolded 'Media' and my responses follow.

Media: I'd like to ask you some questions that are not related to the MPC's policy strategy and decisions, but which are more about your perception of the MPC itself and your role, specifically: Do you consider yourself a full and independent member of the MPC, or more there in an advisory capacity?

Peter Harris: Full and independent member.

Media: It might appear to our readers that at the MPC announcement on Wednesday and at the select committee (on Thursday), the expectation of the bank is that the external members of the MPC should be seen but not heard. In your view would that be a fair assessment?

Peter Harris: The question is rhetorical, which, by definition, does not require an answer.

Media: Do you, as an independent member of the MPC, sign off on both the interest rate track and/or forecasts contained in the MPS' appendices or just on the OCR decision and commentary (ie. the main body of the document).

Peter Harris: The committee signs off on the full Monetary Policy Statement, which includes OCR decisions and all of the analysis, forecasts, overview, outlook, special topics and tables.

Media: Can I check how you feel about responding to those questions?

Peter Harris: I am comfortable responding to some of the questions provided, but would prefer not to comment on some of the others given the consensus provisions in the Charter.

Media: I would also like to ask some questions that I'd acknowledge do touch on MPC strategy. But I would note (media organisation) is a public forum: ie any material comments you provided would be promptly made public and not used for private advantage - as that is why we are here. ie: remarks to us could not I think be said to fall into the category described in the Charter of being "non-public remarks", especially given that access to our news stories is entirely free.

Peter Harris: I don’t want to be cute, but I think your portrayal of (media organisation) as a “public forum” simply does not cut it with MPC members’ obligations under the Charter.

Let me quote two provisions of the Charter:

“Remarks by MPC members are to draw on the MPC’s official communications and on the Governor’s media conference remarks, and non-public remarks should avoid providing, or appearing to provide, new information to a subset of individuals.” To me the acid test is whether an individual interview provides information to a subset of individuals.

On public communication, the Charter says that MPC members should do so with respect for other members and the MPC as a whole (no problem), we should “consult with the MPC in advance of any public communication” (which seems to preclude most things!), and “ensure such communication is publicly advised in advance and on the record (on the Bank’s website) in real-time” (sic. it is their hyphen, not mine). We cannot comment out of the public eye on anything that is remotely commercially sensitive unless it is in real time on RBNZ platforms.

Media: Those questions are: Would you characterise the latest MPS as a statement that you could "live with" or one that you actively agreed with?

Peter Harris: We need to get back to the Charter. The Charter requires us to seek consensus. I wasn’t there, but as I understand it, when the revisions to the Act were underway, a number of options were considered. The USA, where members give speeches before, during and after, the UK which is a verbatim minute with “positions” taken, the single voice like Australia and so on. Regardless, our Charter directs us to consensus. My dictionary says consensus is a “general or widespread agreement”. Sounds very close to me to being something that people can live with!

Media: How significant was the forecast (that) inflation will rise to a new peak of 7.5% in the December and March quarters to your decision to support the consensus?

Peter Harris: This question is way beyond the consensus/confidentiality/collegiality boundaries of the Charter.

Media: Do you believe that inflation forecast is the current best forecast?

Peter Harris: See above.

Media: If the December and March inflation figures showed declines in the CPI would that be likely to make you reassess, in hindsight, your decision to support the latest MPS consensus?

Peter Harris: The MPC always makes decisions based on the latest information available at the time it makes each decision. Obviously that has a reflective element. We learn from what we did. We can never reverse decisions via hindsight.

Media: Are there comments you would like to make about the economic outlook and/or the correct direction of monetary policy?

Peter Harris: We are encountering massive and (in my lifetime) unprecedented turbulent and uncertain times. Although we are an Island we operate in a globe. We have always been a substantial importer of inflation (high, historically, low until a few years ago). I simply have no idea what will happen next to the global environment. I take comfort that in general we review our monetary settings seven times a year, so we are highly adaptive. In a crisis we can respond almost immediately.

It is also important to remember that monetary policy operates with a lag, being fully effective over an 18 to 24 month time horizon. This means that at any decision point there will be effects coming from past decisions still “in the pipeline”, which need to be taken into account, and that current decisions have to recognise that they will take time to be fully effective.

And there are few which may be on the cusp of the above boundary.

Media: The Reserve Bank governor has implied that the only incorrect decisions the MPC has made over the past few years have been ones that it would have required hindsight to avoid. Do you agree?

Peter Harris: Apart from marginal adjustments – 25 basis points one way or another – with hindsight I would have done exactly what we did. We dodged a bullet. Every analyst was predicting economic apocalypse and we saw off the horsemen.

Media: What should we make of the fact there has been no dissent (votes recorded) in 3 years of MPC decisions despite the economic turbulence?

Peter Harris: In one word. Process.

I come back to my definition of our statutory duty to achieve general or widespread agreement.

We work over a twelve day period (with gaps!) unlike other jurisdictions that have compressed decision widows. On a Friday we get our daunting pack of papers, analyses, special topics, tables and graphs. Sadly about 250 (plus) pages. On Monday we start “Forecast Week” where we have presentations on the latest data, state of the economy, financial conditions, international markets and so on.

By late Wednesday each MPC member fills out a first impressions overview. These are anonymous. Where do we see the risks? To inflation. To output. To employment. And why?

How worried are we about the stability of the financial system, instability in output, interest rates, and the exchange rate. How do we think monetary settings are affecting the sustainability of house prices etc.

And then we talk.

By the middle of the second week, we close in on what the monetary policy decision might be. In my view, the discussions tend to “cascade”. What should the stance of monetary policy be: stimulatory, neutral, contractionary? What is the appropriate pace of adjustment in the required direction? And finally what instrument needs to change and by how much.

Over the last three years the committee has done a number of different things. Changes to the OCR, commencement of asset purchases, acceleration of the asset purchase programme, halting of the programme, deciding not to reinvest bonds at maturity, deciding to sell bonds back to the government before they mature, introducing the Funding for Lending Programme and so on.

Decisions involve a mix of instruments, which changes over time in line with conditions in the economy, and which take account of risks and potential trade-offs. To date the process and the options for altering monetary settings has allowed that “general or widespread agreement” to emerge without the need for a vote.

Media: Do you believe any RBNZ OCR decision over the past three years would have been different had you not been on the committee?

Peter Harris: The question is hypothetical: who else would have been on it?!

Media: Are the public getting value for money for the sums spent on external members of the MPC and how?

Peter Harris: I have no idea. I cost taxpayers about $50,000 a year. You judge.

More information

Monetary Policy Committee 

Monetary Policy Committee Charter (PDF 526 KB)

Media contact

James Weir
Senior Adviser External Stakeholders
DDI: +64 4 471 3962 | MOB: 021 103 1622
Email: [email protected]