I have made very few term investments with the banks lately. They are not paying enough to attract my funds. Contact, NZ post, fontera etc have been coming direct to the retail investors and bypassing banks. If banks continue with their low longer term rates I will continue with the bonds. Bugger the banks.

Actually give Brian Fallow credit, he is on to it:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1056...

''It is a big risk. Because official cash rate changes take about 18 months to have their effect on inflation he is effectively saying he does not expect inflation to be a problem for the next three years. He may yet have to eat his words.''

Someone should remind Bollard that Central Banks (and their frontmen) need to retain credibility with the international markets. Once credibility is lost its very difficult to regain.

As andy hamilton has already pointed out if you read Bollard's statements it is obvious that he cannot predict what will happen in the next 18 days, so his statement looking ahead for the next 18 months is a joke. Also if he were paid on performance he would have been sacked a long time ago. The only thing in his favour is that all of the other central bank heads are just as clueless.

Andy Hamilton

Normally I wouldn't defend Dr Bollard, but an undertaking that he will keep interest rates low must be more credible than his often wayward economic forecasts. Bollard was so obviously wrong in 2003 cutting interest rates when house prices rose 20%+ in the previous year, and even more so in 2008 allowing retail interest rates to skyrocket until we were in the third quarter of recession, but today's call seems about right even if it is just a belated statement of what became obvious to many several months ago.

You probably think I'm wrong but retail interest rates aren't as stimulatory as you suggest. The five year rate is only 50bps below the 10 year average, while the floating rate is just 160bps under its 10 year average - that compares to being 280bps above just 9 months ago. So given the depth of the recession there's still plenty of scope for interest rates to fall further without deviating far from normal levels.

I'm not sure why you would expect an oil price bubble to re-inflate when long term estimates of fair value point to oil in the $US40-45 range? Nor can I see why you would think low interest rates would put a rocket under houses prices? Floating rates were around the same as they are now in 1999-2000 yet house prices remained stagnant then (even though they were much less overvalued then they are today).

At best Bollard will stabilise house prices which in the short, medium and long term is a better outcome for the NZ economy. There would be nothing more damaging to NZ's long term future than a collapse in house values, which would be followed by a collapse in the banking sector, followed by a collapse in construction sectors, followed by ... I think you should catch my drift.

andy hamilton : yes, it was only a month or three ago, that Alan Bollock predicted an end to the recession. He saw "green shoots" long before the bobble heads on CNBC began boring us with the term.

Why do we pay him $100 G more, per year, than we pay the P.M. ?

As I proposed yesterday, lets employ the "Wiggles". Even if they don't do a better job as Governers of the Reverse Bank, at least we'll have the fun of a song & dance as the S.S. NZ sinks slowly into the debt laden swamps.

Of course the rate drop means little for business,as NZ banks remain very unfriendly towards business lending seeing them as risky.These are the same business that employ all the workers that borrow low rates (5-6)on their homes that the banks see as less risky?.Most business rates (im talking about commercial buildings)are still around 10%.

Sam Hunt for Governor. Fire the idiot Bollard.

Chris - much of the recent new oil production which has/will come on stream globally is either deep water or extreme deep water (Angola/Brazil) or tar sands (Canada) - much of this is very expensive to produce (we are often talking $50 plus per barrel). When demand picks and pushes back up against supply it is the cost of these most expensive to produce barrels which sets the floor.

Re: Chindia and oil - think about the population in those countries, then look at how car useage was expanding in those 2 nations prior to the economic calamity. Then jump forward to a situation where those 2 countries are growing strongly again.

There is nothing remotely on the horizon which the western nations can use on any significant scale to replace their demand for liquid fossilised fuels - and that includes electric cars (think supply of battery components and think grid supply capable of replacing tens of millions of petrol driven cars).

Heck here we are in the middle of the worst recession since the 1930s as demand has collapsed and yet oil is stable at $45-$52. What is that telling you?

Answer:
a) OPEC has successfully cut supply to balance demand
b) OPEC has never previously succeeded in doing that beacuse one or other non-OPEC producers could still produce lots of oil (ie the North Sea, GoMexico.) Now there are NO non-OPEC producers with capacity enough to undercut OPEC (as they are now all depleting). Think what that means.

Andy Hamilton, I thought that Fischer-Tropsch method conversion of coal, has been assessed to be able to power the earth's internal combustion engines for centuries. But an oil price of $50 is still too low for that to be worth it. Once oil is scarce enough for prices to be guaranteed over $80, alternatives will be let loose.