Reserve Bank has shown it can be the adult in the room

It’s not an easy thing to say, but the members of the Reserve Bank’s monetary policy committee were the grown-ups in the room this week. Not easy, because there has been plenty not to like about the central bank’s decisions in recent months.

Particularly galling was the hyperventilating that led to its 50-basispoint rise in April. The adult response would have been to lift the Official Cash Rate only 25 basis points, or even to sit pat. That way, it could have maturely assessed what its rate hike-athon, which started in October 2021, had achieved.

As it transpired, the answer was quite a lot. The economy went backwards 0.6% in the December quarter and inflation fell from 7.3% to 6.7% in the March quarter.

Even with that data now in the bag, there was a danger Governor Adrian ‘‘shock and’’ Orr and his colleagues would have again opted for the cruise missile over the Patriot.

After all, there had been warlike cries for a 50-basis-point-plus lift to counter the effects of higher migration and a supposedly big-spending Budget.

As it transpired, those fears proved groundless. Instead, the Reserve Bank’s committee listened to the market evidence, not the market Eeyores, and concluded that inflation was falling, the economy was slowing, and the Budget was helping. ‘‘More a friend than a foe to monetary policy,’’ as Orr put it – and then seemed to regret that his own sound bite had appealed to the media.

For the first time, the committee took a vote. The options were a zero increase or a 25-point rise. It voted 5-2 in favour of a rise. Tellingly, the option of a 50-point rise was not even on the table.

How individuals voted is not revealed, but the case for holding the OCR at 5.25% was that monetary policy was already curbing demand and reducing inflation, and it would be better to wait and assess the full effects of past tightening. (Without wanting to labour the point, the latter would have been true in April, too.)

The case for increasing the OCR to 5.5% was that it would increase confidence that inflation would fall back to the 2% mid-point of the target band.

The big rise in immigration numbers was assumed to be temporary and its impact on inflation ‘‘uncertain’’. The

Budget was judged to be contractionary over the forecast period, with government consumption falling as a share of GDP over coming years.

As an aside, Orr poured cold water on the need to further increase fixed mortgage rates as a result of the 25-basispoint increase, because banks had already been front-running their increases.

That measured response was in stark contrast to those commentators who raced from the Budget lock-up to predict a new OCR peak near or beyond 6%. Notable exceptions were David Cunningham – the chief executive officer of mortgage brokers Squirrel – and CTU economist (and former finance minister adviser) Craig Renney.

Labour was clearly delighted and relieved at the Reserve Bank’s decision and comments. At the time of writing, ASB, SBS and Westpac had moved some rates higher – with the main action on floating rates – but there has not been a general move upwards.

National and ACT were equally disappointed, because it let the air out of their inflated claims the Budget was a spend-fest that would pump up prices and mortgage rates.

The bank’s commentary, which neutered some potent political attack lines, capped a bad week for National that was only partly relieved by a more positive opinion poll.

As well as continuing to fluff its Budget response, National has signalled a U-turn on the bipartisan urban housing density law that Deputy Leader Nicola Willis had championed. It was also forced to concede its tax-cut costings were too low.

But even if the Reserve Bank’s announcement did chafe its political skin, National would have been wise to avoid its displays of pique.

A slew of mortgage holders is being hit, or will be hit in coming months, by massively higher interest bills as a result of the OCR rises that have already occurred. Estimates put the country twothirds of the way through that journey, with average rates at 4.5% now heading to around 6.3%.

Those mortgage-belt-tighteners are already hurting, so they are prime prospects for National.

Surely there is enough cost-of-living pain out there for National to campaign on, without arguing – to win a political point – that by rights there should be even more pain if only the Reserve Bank had seen things National’s way.

It is reminiscent of National’s response to the long-desired breakthrough on the shameful treatment of Kiwis living in Australia.

Rather than celebrate the popular victory, which had been a goal of successive governments, it suggested it would be a pig’s ear and encourage more New Zealanders to cross the Tasman.

Sometimes a silk purse is just a silk purse.

The bank’s commentary . . . capped a bad week for National that was only partly relieved by a more positive opinion poll.