By Paul McBeth
Remember the days when the Reserve Bank used to worry incessantly about rising prices? Well it looks like that's back on the agenda.
The new governor Graeme Wheeler rolled up his sleeves this week with his first official cash rate review and delivered his maiden public speech the following day. The first statement pushed the kiwi dollar up 1 US cent and the second one trimmed those gains by half.
And it has seen traders wind back their bets on the Reserve Bank cutting the benchmark rate, with just 14 basis points of reductions priced in over the coming year, compared to 25 basis points before the OCR review.
To be fair, the markets are second-guessing everything Wheeler's doing, be that what he has for breakfast to what brand of suit he wears. Each arcane gesture he makes is surely a sign as to how he will approach monetary policy.
The reality is that they're probably just his favoured clothes, he likes the taste of that cereal, and he's not going to stray too far off the orthodox central bank line.
The OCR statement was by and large a straight bat, towing the line while keeping rates on hold, and the speech outlined more about what the central bank doesn't do, rather than what it does.
I got caught up in the furore when covering the OCR statement when I pointed out a return to watching inflation. We hadn't had more than a couple of bland sentences devoted to rising prices for quite some time, so when Wheeler gave us a bit more, that surely was a hint.
With the benefit of hindsight it probably wasn't. After all, the Reserve Bank is tasked with price stability. The tweak to Wheeler's policy targets agreement means he wants long-term inflation at about 2 percent.
And the consumer prices index slowed to an annual pace of 0.8 percent in the September quarter, below the central bank's 1 percent to 3 percent target band. That's the first time it's done so since that band was widened a decade ago.
Of course Wheeler was going to talk about inflation in his debut, and obviously it was going to be touched on again in his speech.
Tim Kelleher, head of institutional FX sales NZ at ASB Institutional, reckons the OCR statement was a bit more hawkish, meaning there's a leaning toward higher interest rates. He's betting the bank is looking through that soft inflation print in favour of keeping tabs on potentially rapid price hikes next year when the Canterbury rebuild gets underway.
That’s backed up by today's National Bank Business Outlook, which sees pricing intentions at a three-year low. Wheeler spelled out pricing intentions as one of the key things he'd be watching in the next OCR review.
For every augury picking which way the central bank's going to go, there's a contrarian opinion, and it would probably be prudent not to get too carried away.
Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney, isn't saying boo until the December monetary policy statement when the central bank publishes its latest set of forecasts.
He says everybody has got overly excited by the fresh new face in charge of the RBNZ, and that both the statement and the speech haven't strayed from what's been the central bank's line for the past couple of years.
Which makes sense really.
One of Alan Bollard's final statements before his departure was that his last review was boring, as it should be, because the Reserve Bank is there to maintain stability.
"That’s the condition we want to allow New Zealanders to get on and do the best they can – that’s the role the Reserve Bank should be playing," he said.
It seems Wheeler has very much bought into that mode of thought - which makes sense given he's got a handful of weeks under his belt as boss of the RBNZ.
If the most surprising thing that Wheeler gives us are references to long-dead French writers, like he did in today's speech opening his speech with a quote from Victor Hugo's Les Miserables, things are probably not going to veer too far off course.
We can only hope his Les Mis is more West End than Susan Boyle.