I don't think Bollard will have to raise the OCR in this timespan. While, ultimately, there is going to be inflation to deal with, probably lots of it, I suspect the world is at or near the top of the peak in (at least) a double dip recession. Either the commercial property market in the US, or China popping the new commodities bubble will soon take the world back into a recession similar to the one we've just been through, thus, Bollard will feel he has the breathing space.

In fact, given the still rising unemployment levels in developed countries, the large increases in taxation that will be needed to pay for the stimulus programs in the US, UK and Europe, structural problems that are showing the Chinese recovery as fallacy, while the quantitative easing programs outside NZ are still busily devaluing what is left of private savings, I still have trouble seeing where any sustainable recovery can come from, and, even when it does, per the Austrians, those countries who have grown on their fiat currencies the most, especially America, may find themselves permanently re-rated in the living standards stakes, (thus, there is nothing to say the $NZ won't continue to get stronger, over the long term, against the USD).

But, of course, I'm not an economist. [And this post is written recognising that none of the problems causing this recession have been dealt with while Bollard, and those around the world in their Central Banks, continue in existence, and while States' continue to grow bigger, stiffling economic activity over the long term. Indeed, with the concept of laissez faire so far now from the Cabinets of any Western nations, I could give a real doomsday casting of the future ...]

there is no such thing a insider trading at the reserve bank, they just say one thing to enable them to do the other more successfully....

Alan Bollard has given a pledge to property speculators to go forth and speculate.
Even a 1 or 2 % rise in the ocr would not deter them.

"similar to the one we've just been through" If you look at the 1930s depression there was a dead cat bounce then the real fall...Im pretty much convinced that avoiding the double dip is not going to happen, we are seeing the dead cat bounce. Forget a recovery, best case is two years static where we are....but really right now the finance sector is dragging the "real" economy along but its on life support...and they are not really fixing it, in fact they are continuing to kill it IMHO....So sooner or later the real economy is going to be seen for what it is, a norwegian blue....(Monty Python) and well dead. I think myself we will be lucky if we only see "similar to the one we've just been through" dip again....So I agree with Mark H on this.

If the world's economy really recovers, then yes I think Bollard would be hard pushed not to start raising by June2010 and quite sharply....but Im betting with him and in fact longer, Im keeping my mortgage floating...I think we will see 2~4 years of 2.5%....maybe a decade.

Wally: I dont think the Govn can do a thing, its along for the ride...the $NZD is at a silly level....I dont know why.....if you watch the likes of Peter Schiff he's hot on NZ, so maybe some of the "wise" money is selling USD and buying NZD (amongst others) while siting back and watching the expected melt down.

regards

regards

I think Bollard has a job akin to steering NZ between Scylla and Charybdis.

He is hoping that the global recovery sets in in Australia earlier than here, and they raise rates first, this would help take pressure off the AUD/NZD cross and help a large chunk of the manufacturing sector out. (JP Morgan postulated today the RBA could hike as early as Oct!!).

His second challenge is to let rising unemployment help him out by suppressing labour cost inflation, again so he can hold off hiking rates.

If we can avoid a W double dip, and Bollard lets other countries hike first, NZ should get out of this mess OK.

To be honest even if Bollard raised rates 50bps it would still only take us back to the level of OZ, it is very rare for us to have a cash rate under theirs, and not have the cross rate go through the roof.

But then, all the rules are a bit broken at the moment.

Judging by history we will double dip or bounce along the bottom for a few years yet. There is nothing on the horizon that could cause him to raise rates but I wouldnt be surprised to see him adjusting capital requirements but not for a while yet.
He was quite emphatic this morning that domestic commentators were wrong, he mentioned the current account situation and the ability and willingness of asian savers to fund it as they re-balance their economies which should see the currency fall as our ability to import more than we export slows.
My reading from what he was saying is we can re-balance the economy by NZers being unable to afford imported flat screen TVs and BMWs but the exporters will then do nicely. To do that we need low rates so we dont attract hot funds here. If you subscribe to the theory that our high interest rates attracted too much money here and we had no way of absorbing that amount of liquidity.

Also to note that if capital adequacy ratios are lifted then this will be a de facto tightening of policy and would allow rates to stay lower for longer.

Since the dispensing with proper capital ratios is one of the prime causes of the credit bubble this would be a very sound move.

The NZD may go up as it becomes a safe haven currency.
I saw an article recently that US citizens are buying gold to store in NZ
and this article
http://www.nbr.co.nz/article/british-investors-eyeing-nz-farms-109388

'New Zealand farms as land-bank holdings which are seen as a safer investment'

If we don't debase our currency, it may be seen as a store of value.

Raf: surprised it isnt being done then...pity...but I expect once we see a clear recovery they will do it, they will have to...unless this summer's selling season turns into a silly one with huge inflated sales in which case it might be a lot earlier...

The thing that gets me about this "recovery" is its different to others....recessions in the past cleaned out the dead wood, leaving well run companies to expand and flourish as the economy recovers....this time its not happened....the likes of GM etc are dead wood and needed to die off, ditto the big banks....they are still here....so no healthy lean companies leading the way but sick ones on Govn crutches.......

Japan has had a big change in Govn....that's one to study IMHO...

I can't agree, John, that firing up our presses to use our new paper to buy their new paper does anything constructive to solve the global problem. We'll all end up back where we started, but having cut down a few more trees?

I would not like to "call the market's bluff" too much, Emkay. It's a big world, short of money; and if they take their marbles away in a huff, NZ will be in all sorts of a pickle trying to refinance it's hard core debt.
We actually NEED the world to sustain our living standards, being one of the countries that overconsumed in the good times, rather than putting a bit aside. At least the Aussies have their super savings pool to fall back on.
"Don't poke it, and it won't bite you!"

I couldn't agree with your sentiments more Gibber. What Emkay is suggesting would only serve to punish those that have tried to do the right thing (save for their retirements) and reward those that have taken on masses of debt (as some would argue - property speculators). I thought the whole message coming through loud and clear through this "recession" is that we need to save more and spend less. Drop interest rates and what do you think will happen? Cheap credit = more debt. People are already rushing out in their droves to buy up property, partly because interest rates are so low. No, put interest rates UP!!!!!!!

OCR has proved rather ineffective in recent times in general banking arena. Even if the rate is reduced there is no guarantee that Banks will pass on the interest to borrowers, as has happened in the recent past. With Banks having to source more of their funds locally as per RBNZ directives, deposit rates will remain competitive. There is no fear of depositors losing out on a/c of OCR reduction. With unempoloyment raising, people will think twice before taking on more debt, so OCR reduction is not going to increase debt much. What may happen is a psychological effect of better prices, so optimism may increase. The real effect may actually be in the currency market. Why not try it then ?

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