The Mysterious Exit of a Colorful Central Banker

(Bloomberg Opinion) — Adrian Orr, who until a few days ago led the Reserve Bank of New Zealand, once declared it the most transparent monetary authority in the world. That his sudden resignation midway through his term is shrouded in mystery is ironic — but not entirely out of keeping.

Orr was a central banker who jealously guarded his autonomy. He could’ve been more sensitive to optics or framed his answers with a touch more finesse. The nation paid a steep price for the aggressive interest-rate increases of the past few years, enduring a deeper-than-expected recession. Orr left few people in any doubt that a sharp slowdown was necessary to curb inflation and even suggested it was desirable. The candor was refreshing but didn’t endear him to important constituencies.

He once instructed consumers to “cool the jets” before the Christmas holiday. Questions about whether RBNZ forecasts were correct, or the right judgments made based on those projections, were liable to be met with sarcasm or a direction to “read the document.” The fate of the world has never hinged on New Zealand, but I tried to tune in to Orr’s press conferences. His responses to inquisitors were often pointed — and amplified challenges pivotal to the global economy. When do you know when rate cuts or hikes have gone too far? Is inflation targeting all it’s made out to be? It was all there.

The governor had a testy relationship with the right-wing government elected in late 2023. He ascended to the top job when Jacinda Ardern’s Labour Party was in power, and was re-appointed in 2022. Part of being a central bank chief is dealing with administrations of various partisan shadings; US presidents tended to re-appoint their predecessors’ picks at the Federal Reserve — until Donald Trump denied Janet Yellen another turn. Key to a successful tenure, through different political cycles, is knowing not just the right answer to a question. Figuring out how to convey it, and reading the room, is as important.

Some of his exchanges with Finance Minister Nicola Willis were cringeworthy. In 2021, Orr was asked by Willis, then in opposition, whether ultra-low rates had fueled a surge in house prices. Home affordability had become a hot topic. “Thank you for your sharp and pointed question,” Orr replied during a parliamentary testimony. “No, I stand by everything we’ve done and I’m incredibly proud of everything we’ve done as being critically necessary.” Being head of an independent agency is one thing, but the most astute central bankers recognize that singularity ultimately depends on the good will of legislators. You have to go along to get along.

Independence is never absolute. In the case of the RBNZ, the bank relies on the government for its operational funding. That revenue stream depends, ultimately, on Willis. Suggestions from the government that the bank make do with less might have exacerbated tensions and played a role in his decision to walk, domestic publication Newsroom reported. Orr also clashed with lenders over capital regulations, and lashed out at a conservative think tank whose members include the biggest banks. Willis is taking advice on how to compel the RBNZ to loosen the rules.

The specific rationale for Orr’s abrupt resignation remains a guessing game. A smoother person might not have run out of friends so quickly. When Fed Chair Jerome Powell’s relationship with Trump soured in 2018, he could fall back on goodwill he had cultivated among Republicans in the Senate. Even Paul Volcker recognized the limits to going it alone: Someone who pushed the envelope too far would soon endanger the independence that allowed them to be tough in the first place.

New Zealand prides itself on being the first to have a formal inflation target, introducing the objective in 1990. What makes Orr’s exit even more dramatic is that he had planned a special international conference to commemorate the 35th anniversary of the goal, featuring luminaries like former Fed Chair Ben Bernanke. That the governor stormed out the day before and didn’t bother showing up was extraordinary. Talk about forgoing the victory lap, especially given inflation returned to the bank’s comfort zone late last year.

Volcker had to put up with a lot as the key Fed rate climbed to around 20%. Tractors blocked the entrance to the Fed during a protest by farmers. Irate homebuilders mailed him chunks of wood. Orr gave the impression he was happier dispensing brickbats to his critics. Who could blame the RBNZ, which has a big say in selecting its own leader, for preferring a blander figure to succeed him? The institution might have a smaller target on its back. The world of central banking would, however, be less colorful. More’s the pity.