A steep learning curve for RBNZ Governor Breman

On Central bank independence and boomerangs

One of my colleagues, the late William “Bill” Rees, applied a simple rule to manage his time: “What would happen if I did not respond to this email?” That should have been RBNZ Governor Anna Breman’s first response to the urge to co-sign the ECB press statement in support of Federal Reserve System Chair Jerome H. Powell.

I understand the good intentions of the central bankers. It is a small community, and it is likely that all of them know each other well. I empathise with Powell. The Trump administration’s attempts to undermine his position are deeply concerning and, frankly, outrageous. These sentiments are entirely understandable and reasonable.

However, this is fundamentally about central bank independence, and the ECB’s initiative politicises the situation in precisely the way that undermines that independence. By co-signing the press statement, the ECB and its cosignatories have made themselves parties to a political dispute. The unintended consequence is a loss of authority. As far as I know, the ECB has not issued similar statements in comparable cases, which raises questions about the consistency and wisdom of this intervention.

For the RBNZ, the first priority should be rebuilding its weakened reputation. With the poor behaviour of former Governor Orr, now is emphatically not the time to wade into global politics.

But the most concerning aspect is the boomerang effect. By endorsing the ECB press release, Breman entered the territory of foreign affairs, which predictably attracted the ire of Winston Peters, our Minister of Foreign Affairs. And there you have it: Peters is now publicly castigating the RBNZ Governor, telling her to “stay in her New Zealand lane.” This is precisely what undermines central bank independence—the very thing the press release was ostensibly designed to protect.

The irony is painful. In attempting to defend Powell’s independence from political interference, Breman has invited political interference into her own position. Peters’ intervention was entirely foreseeable—he’s hardly known for restraint when he perceives encroachment on his ministerial territory. The fact that neither Breman herself nor the RBNZ board appears to have anticipated this outcome gives reason to pause.

Again, what would have happened if Breman did not sign the ECB statement?