Makhlouf nominates himself as MPC observer

Treasury Secretary Gabriel Makhlouf has nominated himself as Treasury’s observer on the newly-created Monetary Policy Committee.

The committee, which will comprise four Reserve Bank and three external appointments, with RBNZ Governor Adrian Orr as chair, will decide future Official Cash Rate decisions. 

Until now, OCR decisions have been made solely by the RBNZ Governor, although a Monetary Policy Committee did have input into the decision making. The new committee-based decision making process brings New Zealand into line with other central banks such as the US Federal Reserve that use a similar committee-based structure. 

The new structure allows the Treasury Secretary to nominate a Treasury observer to the committee. Newsroom understands Makhlouf has written to Orr nominating himself and Orr has accepted the nomination. A formal announcement will be made later this week. The three independent members have yet to be announced. 

The appointment of a Treasury observer has proved controversial. The RBNZ is known to have resisted the inclusion of Treasury officials as it is believed it would compromise its independence.

Questions have also been raised over the extent to which Makhlouf will still be bound by the civil service’s “no surprises rule,” meaning he is duty bound to relay information from the service to his minister, Grant Robertson. This would possibly compromise the separation of the Government’s fiscal policy, which Robertson and Treasury oversee, with monetary policy which is managed independently by the Reserve Bank.

In October, Makhlouf accepted Orr’s invitation to observe the MPC in its previous, non-rate-setting iteration. In his letter accepting Orr’s offer, Makhlouf promised to manage conflicts of interest.

It does however, note that in the event of an “actual or pending” crisis, Treasury could consult the Governor about the sharing of information prior to an OCR decision being announced. Treasury could then share the decision with ministers to “facilitate urgent action on behalf of the Crown”. 

"I think it’s a bizarre sense of priorities for [Makhlouf] who has 300 issues to keep on top of as secretary for the treasury to be spending effectively 50 days a year doing this.."

Robertson told Newsroom he would not expect to be informed of the committee’s decision.

“There are rules about being there that would have primacy in those situations,” Robertson said.

“I wouldn’t be expecting him to breach the confidentiality of discussions he has.”

But the Reserve Bank is already concerned about leaks. It has moved publication of OCR decisions to 2pm allow it to be announced almost immediately after being made, to avoid the decision leaking. Historically, the rate has been published in the morning.

Makhlouf’s appointment also raises the question of whether a senior Treasury official will have time to commit to attending Monetary Policy Committee meetings. The current committee requires of its members roughly 50 days a year, including the time spent attending forecasting meetings at reading relevant reports.

Michael Reddell, who was a member of the Monetary Policy Committee in its previous guise, said the time commitment was a significant concern. 

“I think it’s a bizarre sense of priorities for [Makhlouf] who has 300 issues to keep on top of as secretary for the treasury to be spending effectively 50 days a year doing this,” he said.

Reddell said finding staff could be difficult, as 50 days a year was too much for people with significant commitments, but too little to attract people who did not already have an income. 

“It’s going to be a big issue finding good people, even if you’re an academic taking out 50 days for one part-time job is hard,” Reddell said.  

“It’s either too little a commitment or too much,” he said. 

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