The most common guess had been that his time at the World Bank would for some reason make him even more dovish than Alan Bollard.  Our view had been that it was too early to judge, and that all we could tell was that he looked imminently qualified to bring strong academic and organisational leadership to the Reserve Bank.

Graeme Wheeler’s first Official Cash Rate (OCR) review yesterday provided very few clues as to whether he would be a hawk or a dove.  While keeping the OCR unchanged, the accompanying press release was even briefer than normal, leaving economists grappling for colour.  If anything, the market was surprised there wasn’t more emphasis on the recent soft patch of domestic economic data. 

This information void gave increased importance to the Governor’s first speech today on “Central Banking in a post-crisis world”.

He used this opportunity to remind readers that monetary policy by itself cannot deliver quick fixes to achieve everything to everyone.  He highlighted that the growth rate of an economy is ultimately driven by the mix of its resources and how productively they are applied to add value and generate wealth.  Equally, the exchange rate of an economy is ultimately driven by the savings and investment habits, not short-term interventions. 

In outlining his case, he effectively poured cold water on the idea of moving the OCR to try and manage the exchange rate, or to engage in quantitative easing (QE) when there is still scope to move the OCR.   Instead, he emphasised a more traditional view that the best contributions central banks can make to society's well-being are to keep inflation low and stable and maintain a sound financial system.

In our view, the speech was a nice reminder that central banking is not just about being a hawk or a dove on inflation; it is about understanding the scope of the role and making good judgements about when to use the tools available.  On that front, this speech increased our confidence that the new Governor is well prepared for the job ahead of him.