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RBNZ hikes OCR 25 bps to 3.25% as expected; leaves forecast track for interest rate rises unchanged

RBNZ hikes OCR 25 bps to 3.25% as expected; leaves forecast track for interest rate rises unchanged

By Bernard Hickey

The Reserve Bank of New Zealand has increased the Official Cash Rate (OCR) by 25 basis points to 3.25% as widely expected, but has left its forecast track for a rise in short term interest rates to over 5% by early 2016 broadly unchanged.

Financial markets had been pricing in a slightly lower track for interest rates over the next two years. The New Zealand dollar jumped around half a US cent to 86.2 USc on the news.

The Reserve Bank also raised the prospect that a surge in net migration beyond its current forecasts could lift house price inflation by four percentage points, and force the bank to raise interest rates by a further 55 basis points. Governor Graeme Wheeler later downplayed the prospect of using migration controls to reduce the impact on the economy, saying migration was too volatile to be able to successfully micro-manage the effect.

Governor Graeme Wheeler said GDP was estimated to have grown 4% in the year to June and the economy's expansion had considerable momentum as strong construction spending in Christchurch and elsewhere was supporting growth and offsetting any fall in commodity export incomes.

"While house price inflation remains high, the housing market has moderated since late last year when restrictions were applied to high loan-to-value ratio mortgage lending and when mortgage interest rates began rising," Wheeler said.

"Fiscal consolidation continues to moderate demand growth, though by less than previously assumed," Wheeler said.

"The exchange rate has not yet adjusted to weakening commodity prices, but is expected to do so. The Bank does not believe the exchange rate is sustainable at current levels," he said.

The bank made no comment in its Monetary Policy Statement to follow up the Governor's suggestion in a recent speech that the Reserve Bank might intervene to push the currency lower. Governor Wheeler later told a news conference the bank continued to use its 'traffic light' system for judging if and when to intervene, but he declined to say if the bank was considering intervention now.

Wheeler said above-trend growth had been absorbing spare capacity and adding pressure to non-tradables inflation, particularly for construction costs.

"Nevertheless, overall wage inflation remains moderate, reflecting recent low headline inflation, increased labour force participation and strong net immigration," he said.

"Inflationary pressures are expected to increase. In this environment, it is important that inflation expectations remain contained and that interest rates return to a more neutral level."

Wheeler repeated previous comments that the OCR needed to rise and its future rises would depend "on future economic and financial data, and its implications for inflationary pressures. "

"By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained," Wheeler said.

News conference details

In the news conference after the release of the statement, Wheeler was asked if the bank's decision not to lower its forecast track for interest rates was designed to send a hawkish message to markets.

"There's still strong momentum in the economy," he said, pointing to a 50% increase in residential investment over the three year period from 2013 to 2016 and strong net migration.

"We still see inflation pressures associated with the economy growing above trend rates of growth. We think potential output growth in the economy is probably around 2.75% and over the next 12 months we're forecasting growth of around 3.5%, so we are starting to see pricing pressures in the non-traded goods sector, particularly around construction and some of the other services sectors," he said.

Wheeler was then asked if he would like to see the Government change migration policy to take pressure off the economy and interest rates.

"Migration is in many things a very positive force for the economy, particularly if it involves increasing skilled labour. There are demand and supply side effects," Wheeler said.

"The historic experience is the demand-side impact tends to come through first in the economy and that will be reflected in higher housing demand. What we're seeing this time is that maybe the impact on aggregate housing demand may not be as strong as, for example, the 2002 to 2004 cycle because a lot of the net migration is due to New Zealanders staying rather than departing the country and also a lot of the arrivals are tied in to temporary work permits," he said.

"So it's possible we won't see the same dramatic impact on house prices we saw in 2002 to 2004."

Wheeler was then asked about the Labour proposal to control migration to take pressure off interest rates.

"It's very hard to fine-tune immigration to meet demand purposes. By the time you make an adjustment you may well find the situation has completely changed," he said.

Other interesting figures

The Reserve Bank is forecasting dairy prices will fall another 12% over the next 12 months, having already fallen 26% since February. This would reduce dairy farmer income by around NZ$2.25 billion over the next year, or about a 1% decline in real incomes.

The bank is forecasting an increase in the working age population over the coming years of 100,000 or 3% due to migration. This compares with a cyclical increase in migration from 2002 to 2004 of 70,000.

New Zealand's household savings rate has averaged minus 2.75% of disposable income for the last decade, but the Reserve Bank is forecasting the dis-savings rate to deteriorate over the next two years to 0.9% and 0.8% respectively after actual savings of 1.5% in 2013/14.

"It hasn't had the improvement you've seen in many other countries, for example in Europe or Australia," Wheeler said, pointing to the bank's forecast of the current account deficit worsening to 6.1% of GDP by 2016/17 from 2.5% in the 2013/14 year.

Here is the full statement from the Reserve Bank:

The Reserve Bank today increased the Official Cash Rate (OCR) by 25 basis points to 3.25 percent. New Zealand’s economic expansion has considerable momentum, with GDP estimated to have grown by around 4 percent in the year to June. Global financial conditions remain very accommodative and are reflected in low long-term interest rates and narrow risk spreads.

Economic growth among New Zealand’s trading partners is gradually improving and global inflation remains low. Prices for New Zealand’s export commodities remain historically high, but their recent falls will reduce farm incomes over the coming year.

A continued acceleration in construction in Canterbury, and more broadly, is supporting growth, together with strong net immigration flows that are adding to housing and household demand. Business and consumer confidence remains buoyant, as do businesses’ reported intentions to invest and to hire.

While house price inflation remains high, the housing market has moderated since late last year when restrictions were applied to high loan-to-value ratio mortgage lending and when mortgage interest rates began rising. Fiscal consolidation continues to moderate demand growth, though by less than previously assumed.

The exchange rate has not yet adjusted to weakening commodity prices, but is expected to do so. The Bank does not believe the exchange rate is sustainable at current levels. Headline inflation remains moderate and tradables inflation is expected to be low for some time.

However, above-trend growth has been absorbing spare capacity and adding pressure to non-tradables inflation. These pressures are particularly evident in construction cost increases. Nevertheless, overall wage inflation remains moderate, reflecting recent low headline inflation, increased labour force participation and strong net immigration.

Inflationary pressures are expected to increase. In this environment, it is important that inflation expectations remain contained and that interest rates return to a more neutral level. The speed and extent to which the OCR will need to rise will depend on future economic and financial data, and its implications for inflationary pressures.

By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained.

(Updated with currency move and comments from news conference)

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117 Comments

Very hawkish RBNZ MPS - July hikes now being priced back into swap rates since 9am which are now higher. Expect fixed rate mortgage rise over the next few days.

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Doesn't this mean the NZD will be going up - overseas holiday time?

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That is the expectation Bob - see you in Hvar.

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See you in Paris Bob :)

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Choices, choices.

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Sounds like 2009 when mortgage rate pulled the hand brake on house price.

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Yes it has risen against the USD already.

so that in itself will hurt exporters.

China has declared its economy is on a slow down as well as Australia last week.

I believe Australia is our largest trading partner, so our trade with Australia is about to reduce.

The OCR also effects all commercial overdrafts so all NZ companies will be paying higher interest rates for funds.

in December last year houses where the most unaffordable in 12 years.... since then 3 OCR raises and you need 20% deposit for first home owners. sound like Houses just became even more unaffordable/ unatainable

This coup[led with Timber, Glass, Steel and concrete increases will drive up the cost of building to unsustainable levels and will begin a decline in new houses onto the market.

also NZ has fewer actual builders, you remember the ques on TV of builders leaving for Australia a year into the GFC. Christchurch itself could consume every builder just to get back the numbers of 40,000 damaged or destroyed homes.

Strangely under our United Nations Accord when the people cant afford homes of their own the Govt are bound to supply shelter. Get ready for alot of people to not be able to find or afford shelter,,,,big Govt Building Bills coming.......

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MCNZ.......in relation to your last paragraph.....I don't think the Government are bound to supply shelter other than in Article 25 (2).....these 2 clauses interact somewhat.....and maybe it should be argued that Government and its Agencies should not put restrictions in place that deny the standard of living or the ability to exercise the right to own property.  If people are guaranteed the right to a standard of living that is oulined below then the Government and its Agencies should be deemed in breach of the Declaration!

Having the Right to something does not guarantee that the State should provide those things....In my mind the State Guarantees that they will not do anything which impedes the person from suceeding to do those things him/herself. Otherwise Article 30 is breached.

Article 30.
  • Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.

 

The fact is planning departments across the country breach the Articles constantly!

The Government is meant to ensure the Rights outlined don't get breached....past and present have all been poor performers in enforcing these Rights are never breached.

And this is the biggest bad joke for NZ

Article 8.
  • Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law.

 

 

The Declaration of Human Rights

Article 17.
  • (1) Everyone has the right to own property alone as well as in association with others.
  • (2) No one shall be arbitrarily deprived of his property.

 

Article 25.
  • (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
  • (2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

 

Until every person working in the Civil Service is requried to take an Oath and guarantee to unhold these rights then it's more interference in all the Rights granted to citizens under the universal Declaration of Human Rights. It is pretty typical for the bureaucrats and public servants to arbitrarily deprive people with some hogwash that something is for the greater good or that in some distorted way they are fulfilling these Rights.

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Why is the whole country being prejudiced financially through increased interest rates to make way for a few thousand migrants ?

I am sorry to say that if migration is causing inflation , then we need to stop it immediately

And whatsmore many of these migrants contribute nothing to New Zealand and often consist of :

 

  • Aged parents of newly naturalised citizens
  • Family reunion migrants who end up on the benefit
  • Pacific Island ' special cases' who often cant find work
  • So called Investors who often use this route to buy their way in on borrowed family money  , and then get PR and start repaying the borrowed money
  • Weathly people who buy property to generate income , live off the rents and dont actually work
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ASB selling euro at .6239 travelex usually more expensive I find.

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The Red Terrace and 50 Shades of a Command Economy has spoken!

 

Another wee trip.

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Floaters might - 0.25% on 100K is $250 a year. On the other hand the Euro trip just got $500 cheaper this morning with more to come...

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Savers rejoice? The only people rejoicing are the bankers with fatter margins. Term deposit rates are flat: http://www.interest.co.nz/chart/investing/term-deposit-rates

 

20bps increase to the 1-year rate so far this calendar year, 15bps increase for a 6-month term. 

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Agree.

regards

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Savers rejoice? - Savings and TD rates haven't changed in years/months.

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They're much slower to respond than mortgage rates.

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Not savers but the saved.

Those part of the 6% un-employed with no drop in sight? no job, no savings, cant save yes I am sure they are very happy.

Lets see these OCR rises continue and it will cause a recession and house price drops. Then say its severe which looks likely, so mortgagee defaults and insolvent banks and the OBR triggered. The saved then take large haircuts, yes Im sure you will be happy with that, not.

Be careful what you wish for.

regards

 

 

 

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Has anyone used AIRNZ One Smart Card pre-load card?

No fees if used according the rules - but it seems they are making all their money with this product on FX rates.

 

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Depends how much you're loading, can be about the same total cost as getting cash from a bank (all of whom have a minimum NZ$10 exchange fee). 

Also there's a $1 per month account fee.

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they dont charge 2.5% Xrate at Offshore ATMS and 3 free withrdrawls a month.

Thats very good - but how have you verified that their rates are same as Banks?

They are not very transparent on rates anywhere I can see....

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You have to login to see the X-rates. The AUD rate looks to be about 19bps less than the equivilent cash FX rate, so if you're exchanging more than $526 you'd be better off getting cash (given a $10 minimum fee).

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Oh ok thanks. I've ordered the card but not activated it yet (not delivered) so I suppose I cant see rates until then. Wonder if you could check Euro rates to see what kind of margin they are applying compared to banks.

Merci,

SK

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EUR 0.6144 as at 12:45. I'm going to test my card in Australia in November - loading some cash tomorrow so we'll see how that goes...

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ok thanks - about a cent more expensive than banks.

but then you dont pay 2.5% on withdrawls at the other end - so probably similar overall.

Cheers,

SK.

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Yesterday ordered $3000.00 US dollar cash.  Yes.  Real cash folding money.

Quote from Westpac was $3599.87 and from BNZ was $3599.00.  You can see they are competitively fighting for business.  Not !

When I pick these up Tuesday there will be the price of the day.  So probably a bit cheaper than yesterday.  thanks to the RB

So we have 1.   Certainty.  2.   No tricky fees.  3.   total convenience.

It may not be what you are used to.  But once you do, there is a sense of security with cash and no dependence on cards and systems.

Don't warn me be about being mugged.  Am not going to Henderson.

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I've converted some cash and loaded some cash onto the travel card. Best of both worlds.

Cash is convenient, but it's not secure. How do you even carry around $3,000? In a sack with a dollar sign on it?

Travel card provides certainty (lock in todays FX rate), no tricky fees (no 2.5% charge, 3 free ATM withdrawls) and doesn't sacrifice much convenience in a place like Australia where there are ATMs anywhere.

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If you have some premium credit cards (eg ANZ Airpoints Platinum Visa) you pay no forex fees for buying forex cash at a branch in NZ.

But if like me you hate carrying cash, and you aren't going to be spending much (only across the ditch for 2 nights for work)  its just easier to transfer a small amount of money to the onesmart card, pay the cash load fee ($1), and mediocre FX rate and not have to go visit a branch or silly ATM fees on a normal credit card. Just make sure you don't leave excess cash on the card.   You also earn airpoints $ for using it.

So it can be useful for short cheap trips.

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Those preload travel cards are just if you have trouble controlling  your spend overseas (won't be cheaper)

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Seems a lot cheaper than using NZ cards in Euro ATMs.

What do you do - carry wads of cash?

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VISA loaded for travel was one I was thinking of - was advised against by banker rellie.

 

On Mastercard getting fine exchange rate - then 1% + 1.5% foreign currency taxation fee whatever that is. ATM on debit card is $6 a go, fine x rate and 2.5% fee.

 

Maybe it's ok - I see a 2.5% fee for unsupported currencies and small print does say OneSmart Conversion Rates apply..... 

 

 

 

 

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I am off to France in three weeks so the continued rise against the Euro is good news. Kimy you continue to moan about the reserve bank and the increases in the OCR. You have backed the wrong horse and you just need to accept it and get on with life. Those tenants of yours really appreciate your subsidy of their lifestyle and in turn they really look after your over priced assets with a daily vacuum and alike.

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Chuckle. Half time score - Tennants/savers 3 Kimy 0.

The second half is expected to be a bloodbath......

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Be interesting to know which property you are trying to get a 3rd house on

Using Google Maps and satellite view had a look at all the properties on the foothill slopes of Mt Roskill in Dominon Rd, Youth Street, and Roseman Avenue

 

Couldnt see one that currently has 2 and could accomodate a 3rd house

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You can holiday anytime you like when you don't have to worry about trying to keep those investments viable and the tenants who just love you so much they keep them spotless. Well I suppose not everyone has the ability to get into non residential home investments. You have to have intelligence and money to do that. That is why the return on investment homes is so pathetic. Easy to get into and relatively low risk so low return. Anyone with half a brain can do it.

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What should be noted is that kimy complains about interest rates rising while the economy is deflating (so he says), meanwhile he bets on and invests in (property) inflation

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As I thought Kimy all done on incredible leverage. How much debt in the $6million?  What is the return on $6million? When you strip out inflation and costs what is the net return on capital. And your $6million is not worth anything until you sell it.

The difference between you and me is I am a high net worth person who is debt free. I retired young and enjoy an income stream from dividends mainly and some interest. Anyone who has consistantly bought and held shares over the last thirty years (including the crash of 87) is in a fantastic position. No risk of the bank calling up loans and no risk of property deflation which we certainly will look at in Auckland and Christchurch as houses get built and interest rates get to their 7 to 8%. Dividends increase each year and there are no costs and hassles with tenants.

Whenever a share drops to an attractive value I just buy more of them to get the dividends. If your houses drop to a certain value the bank will come calling. You are in an investment class full of overleveraged people who have got a bit too confident. All you need is China to cough or interest rates get a bit too high and things will change very quickly. Have you thought about taking some profits while the going is good.

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I really do dislike smug BB'ers like you, Gordon.

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Sorry if I sound smug TFT but I find the current property spruikers incredibly smug because they are all virtually built on highly leveraged debt and it has pushed up housing prices for X and Y which really annoys me. I started saving for retirement the day I started working. I saved every year and took some risks. I actually think my generation have stuffed it up for X and Y with their greed over housing for investment. My children and grandchildren will benefit if prices drop or at least do not keep up with inflation which is more and more on the cards.

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I dont entirely agree with you that BB's have stuffed it up for X and Y

 

Presumably you are talking about property prices

 

Since the year 2000 there has been $ trillion's sloshing around looking for a safe haven to make a profit - then there was the GFC - now, since the GFC, cities like London, Toronto, Sydney, and Vancouver have seen property prices explode due to uncontrolled immigration and property investment by migrants and non-residents - it has been acknowledged as such - no question

 

This phenomena has been recognised in Canada as being disadvantageous to the locals, meanwhile over the southern canadian border in America, not so much. Now Canada has tightened the rules for migrants and non-residents buying property as a safe-haven investment, as a result of which, just over that border the explosion is now beginning to be felt in the San-Francisco apartment scene where prices are now suddenly exploding in the face of attention from off-shore buyers

 

The problem will continue while destination target countries continue to do a Horatio Nelson and hold the scope up to their blind eye and allow huge amounts of money of unknown origin and un-known provenance into their domestic property market

 

I have written before, the destination countries should require incoming buyers to prove the provenance, to authenticate it the source of funds, and if borrowed, authenticate the provenance of any security over which it is charged, and lastly the local authorities should require a tax clearance for the buyer from the tax authorities of the country of origin

 

One thing you can be certain of is that a $20 million lump of questionable untaxed money fleeing one jurisdiction, looking to invest in another jurisdiction will out-vote and over-whelm the locals with their legitimate taxed money 2 to 1

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Ironclast the BB's were in the position to borrow big time during the period 2002 to 2007 when property had that big lift. Many were debt free or close to it during that period and used their equity as their deposits on their portfolios. Frankly I could not think of anythink worse than being a residential landlord. Virtually all tenants think their landlords are rich pricks and as a result do not respect the assets landlords handover to them willy nilly for a pretty average return.

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I also would not lay the fault at the generational gap.  

The mode of thinking was to take advantage of the potential at the time.  much of the good that was achieved was on the back of that spending.

What is the elephant in the room then, which is still the elephant now.  Is that it was assumed that such wealth generation could continue indefinitely, at such a high rate..... and that (elephant time) that entry level income would somehow magically keep up with it.

it's all fine and good saying our own investment can be serviced now, based on our debt service and customers.  But.  If we don't have the funds strategically reinvested we can't continue that level of development... and all school leavers and workplace-reentrants all come back with marginal value and are only worth marginal amounts to the marketplace.      So what?  

This is what...That means an decreasing amount of "wealth-ed up" people in the market place, which means less disposable, less spending, more credit, less ability to service decent wages to many people.  Resultant harder to keep businesses running, very little money for innovation and all those advantages you've probably taken for granted when you grew up (eg improving infrastructure, good public services) are going to be an increasingly impossible burden.  

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So Gordon you are interested in the benefits your children and grandchildren might attain if property prices fell......interesting comment!

Maybe if you want to do something for your family......holiday in NZ!

Keeps people in the NZ economy employed and assists business's here too.......at least then your family will have a local economy and might just be able to afford a house.

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Kimy.  You are very pleased to tell us your portfolio totals $6 million.

But you don't seem so keen to tell us what the debt it carries.  Quite odd

We need to know that as a gross figure is just not informative - actually useless.  Your reticience also undermines all your other viewpoints. 

So Kimy.  Whats the debt loading.

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Sorry Kimy it does not stack up. Starting with $50,000 and only having $600k debt on $8million of assets is not possible in the years since 2002. I have a past advising punters with big portfolios like your so called one and my experience is they were only saved by the drop in interest rates because of the gfc. The banks have made them sell down their portfolios since.I have property in my portfolio but not residential housing. You are having us on as are most spruikers on this site. Residential property simply does not return enough to pay off debt as you have suggested.

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Kimy you can say all you like it does not stack up. I worked hard for 30 years with very few holidays actually. The cars have made no difference to my retirement as to when it happened and my lifestyle now.  The difference between you and me is I am high net worth with no debt and if your stories are true you are only low net worth and your debt is actually a bit scary, if it is true.

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It could do - that's like owning 7 central suburb properties which were 100-150K 15-20 years ago. Even at 7 x @200k = $1.4m to buy in and if he only paid $100k principal off each one over 15 years (and they would have all easily returned postive cashflows over that time) he'd have $700k debt now.

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Gordon - you have a past of advising punters with big portfolios.......so you made your living or some of your living off giving advice on property.......a middleman who clipped the ticket.......never putting his own money on the line.......

A spruiker is defined in the Macmillan Dictionary as:

(Australian English) someone who tries to persuade people to buy something, use a service, etc often in a dishonest or exaggerated way.

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Just a very small part of my busy practice. There were only so many people silly enough and greedy enough to revalue their portfolios during the mid 2000's and keep on borrowing to buy more properties. Only the drop in interest rates to emergency levels after the gfc saved them but the banks have still made them sell down.

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Gordon that is just the markets at work......there will always be winners and losers......there is a risk to all investment.......property in particular housing works well as most of the risks can be mitigated. You don't get a flight from property scenario that some other investments have like the sharemarket. Housing is stable and a necessity and is further helped by the incompetence of Politicians and bureaucrats etc. I think Robert Kiyosaki has some of the best advice - an investment provides a return......I think some people have gone astray on their interpretation of the word return.....I think they forgot the words like postive cash-flow and looked for a tax break against other income.  People that were doing this were chasing Capital Gains rather than rental income.....

 

If people failed to do their homework when investing in housing then maybe the lessons in over leveraging themselves is a good thing......it's the.better to have tried and failed than to never have tried at all scenario.....market movements are often good at removing any bad investments/investors out of the way......you have to remember the underlying asset is still there....the house/property doesn't go away it merely transfers to another owner.

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Thanks for the info Kimy.  Happy to accept what you say on that seeing as you said it.

In general I am amazed at the repetitive stories in the likes of 'Investor Magazine' which talk of vast property empires achieved in just two years.  But don't mention the debt.

Makes the story worthless in my view.  Or makes it worse even , a fraudulent story.

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All the spruikers on this site are just having us all on. Any genuine investor would not bother to spout on about their investments. This is happening world wide on all forms of social media. People just get on line and spout on about their so called wealth and success to make themselves feel good. Any person who has been successful just gets on with life and avoids any form of publicity as they are comfortable with their position.

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Who was it that further up the thread said...

 

" I am a high net worth person who is debt free. I retired young and enjoy an income stream from dividends mainly and some interest. "

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SNAP - Gordon gets served.

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There are people who have been successful and actually care enough to spread the word, not just sit about being selfish.

The same types of people who like to see some of the harmful myths busted.   Myths like:
"work smart, not hard" (an atitude like that won't land you a career), and
"the path to wealth is top level education" (not in age of education as a saleable product), and
"do what the self-help books say" (want to get _really_ wealthy, _write_ a popular selfhelp book
"follow trades are 90% successful"  (yeah that's because the first one in sets up hte bucket shop)
etc

These days some people realise that good business is good for everyone.

I read somewhere today, "that low productivity businesses should be replaced by high productivity businesses.  That is the best economic goal."
 ..For whom?  the wage slave?  the avergae jo? the shareholders?

for some of us Gordon, it's not all about ourselves.

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As usual Cowboy I cannot understand anything you are saying. Could you please paraphrase what you are saying, thanks.

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....in a nutshell , he's saying that you should've voted for Dr Don Brash , in 2005 ....

 

Wise man , our cowboy .... amen to that , brother ..

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Thanks GBH. I get it now. I did vote for Brash along with all members of the Exclusive Bretheren Church. The trouble for him was the only other person who voted for him was Cowboy. Maybe he belongs to the church.

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Where pray do tell us is this so-called inflation ?

I keep track of our household spending , and its flatlined for the past 2 years , even my Auckland council rates came down after we merged the cities .

The only thing thats gone up is homeowenrs insurance premimums.

Unless you are building or buying a house , there is little evidence of inlfation .

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Have you ever bought a beer in Auckland city?

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I look at guiness and the 4 or 6 packs are no more expensive than last year. Sure the pubs are putting up prices, no problem dont go there.

regards

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My rates, power and commuting bills have all gone up. Wage is stagnant.

 

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Not in the construction industry then? 

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In chch yes hourly rate is up, not so Wellington,  my mates have gone to chch even to get enough work let alone a raise.

regards

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Yes I hear Wellington is quiet/dead, presume Chch is busy. Auckland is crazy busy.

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Hi,

Shop around, look at 2degress, my phone is 25% cheaper and my broadband is 30% cheaper this year easily offsetting any rises in rates and power.

regards

 

 

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thanks, will do.

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FLIP sems to be the best for cheap broadband :)

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take into consideration performance, I could go cheaper but I want the speed "guaranteed".

regard

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The CPI is across all age groups and incomes.  So some are impacted worse than others. It is especially hard or noticable if you have a small income of which most is spent on the basics.

As an example if you are an OAP and/or poor you have seen an increase in food and electricity, also rates.  If you are young or heavily Internet connected then communications has dropped significantly in cost.  eg My broadband has gone from $200 a month for 150gb (plus over-use charges) to $139 a month unlimited.  I am probably saving $100 a month just on that. My wife's small monthly mobile account has dropped from $40 to $29 a month for 50%+ more talk time and data.  Clothes? cheaper I think.

In terms of food another thing to watch is subsitution and smaller for the same money.  So tomato sauce might have gone from 50% tomatoes to 25% tomatoes and 25% more sugar to compensate for the volume, and/or maybe throw in milk solids to bulk.  Also say prawns, 500g bag still around $17, but they are no longer NZ but OZ "made" with offshore content, (read chinese)f course they dont say that, I refuse to buy it.

regards

 

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Have you ever bought a house in Auckland or Christchurch?

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Houses are classed as an investment and hence not in inflation.  By the same point rents in Auckland have not gone up much if at all.

Chch is a special case and should be ignored for national CPI, its regional and a one off (I hope).

regards

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Interest.co.nz graph has Auckland 3 bed rents increased over 20% in last 5 years + 30% increase for 2 beds. Is that the " ...rents in Auckland have not gone up much if at all" you keep referring to?

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http://www.stuff.co.nz/business/money/8629727/Rental-returns-flatline

http://www.stuff.co.nz/business/industries/10124295/Canterbury-rents-se…

http://www.rbnz.govt.nz/research_and_publications/speeches/2013/5491478…

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=112…

"Rents for three-bedroom homes in Auckland have increased only slightly over the last 12 months, according to figures released by real estate firm Barfoot & Thompson today.

The average rent for a three bedroom property in Auckland was now $464 a week - up four per cent from the same time last year."

http://www.interest.co.nz/opinion/66373/bernard-hickey-points-out-tame-…

So the Q is what / why is there a difference in what you see and what I see.

URL?
 

cherry picking data?

 

 

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http://www.interest.co.nz/charts/real-estate/rents-median

This data is from the Tenancy Bond Service of the Department of Building and Housing, and as such it is very comprehensive.

A typical month sees more than 10,000 bonds registered with the service.

This series tracks the rents for 'new' rentals, the rent when tenants move into a property 

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Your sources and figures agree.  It's just the interpretations that differ.

B&T describe 4% over one year as 'steady' , and "only slightly increased" 

While bob disagrees pointing out they have gone up 20% over five years.  

What's 20 divided by 5?

 

If you're a landlord looking at your yield after 15% capital gains, you probably do think a 4% rent rise is 'only slight', and needs to rise allot more to justifiy continuing to hold the asset.

 

If you are a tenant, whose wages have not increased much over the last 5 years, 20% probably seems quite high.

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As dtcarter points out above 4% is not flat and over 5 years is 20% (which is also not flat). 

 

Your first and third links are on rental returns relative to values - not rents.

Your other links do not show flat rents - your last link shows a line heading up. Flat = horizontal (I'd even accept slighty inclined to match inflation)

 

Not sure how you can link to a chart showing a 35% increase and claim it's flat?

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Steven - I think you'll find land is not counted in the inflation figures while housing is.

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No, Im pretty sure housing inflation isnt, do you have a URL?

regards

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http://www.stats.govt.nz/survey-participants/survey-resources/cpi-resou…

lists content and services but not houses themselves

regards

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Ah cool, I hadnt seen that,and the % is?

URL?

regards

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"Under the 'acquisitions' conceptual approach used to compile the New Zealand CPI, the  expenditure weight allocated to purchase of housing represents the value of the net  increase in the stock of owner-occupied housing during the weight reference period. Both  expenditure on newly constructed dwellings by owner-occupiers and alterations and  additions to existing owner-occupied dwellings are included.    Sales within the household sector of established owner-occupied dwellings do not add to  the stock of owner-occupied dwellings, as netting results in each purchase (positive  expenditure) being cancelled out by a corresponding sale (negative expenditure).  However, any net shift of dwellings in either direction between owner-occupation and  renting or small-business use should be included. This shift results in either a net addition  (towards owner-occupation) or net reduction (towards renting or business use) to the  stock of owner-occupied housing. "   this?   CPI-review-2011-paper.pdf   So new owner occupied housing, yes, but if the % of rentals is increasing that is negative so what is the net..    
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How about you start talking some quality, and quantity, otherwise you make no sense.

regards

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Black .... Kettle .... Pot ....

 

... rearrange the order of  these three words to suit yourself , buddy ... .. aha haaaaa deeee haaaaaaaa !!!

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The letters can rearrange to - be clot kept talk

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Pleb tattle kock !

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Blat pettle kock !

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Tack kelp to belt

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Blacktop Kettle
Back Kettle Plot
Black Kettle Top
Black Kettle Opt
Battle Lock Kept
Tablet Lock Kept
Tackle Blot Kept
Tackle Bolt Kept
Calk Bottle Kept
Lack Bottle Kept
Pack Blot Kettle
Pack Bolt Kettle
Tack Bottle Kelp
Latte Block Kept
Tattle Bock Kelp
Talk Bottle Peck
Talk Belt Pocket
Plat Bock Kettle
Pat Block Kettle
Apt Block Kettle
Tap Block Kettle
Back Elk Pelt Tot
Back Elk Lept Tot
Back Kelp Let Tot
Back Kept Ell Tot
Back Kept Tell To
Back Kept Let Lot
Black Elk Pet Tot
Black Kept El Tot
Black Kept Let To
Balk Peck Let Tot
Balk Cot Kept Let
Bat Lock Kept Let
Bat Colt Elk Kept
Bat Clot Elk Kept
Tab Lock Kept Let
Tab Colt Elk Kept
Tab Clot Elk Kept
Calk Belt Kept To
Calk Bet Kelp Tot
Calk Bet Kept Lot
Lack Belt Kept To
Lack Bet Kelp Tot
Lack Bet Kept Lot
Pack Belt Elk Tot
Tack Be Kept Toll
Tack Bell Kept To
Tack Belt Elk Top
Tack Belt Elk Opt
Tack Belt Elk Pot
Tack Belt Kelp To
Tack Belt Kept Lo
Tack Bet Elk Plot
Tack Bet Kelp Lot
Tack Lob Kept Let
Tack Blot Elk Pet
Tack Blot Kept El
Tack Bolt Elk Pet
Tack Bolt Kept El
Act Blot Elk Kept
Act Bolt Elk Kept
Cat Blot Elk Kept
Cat Bolt Elk Kept
Tact Lob Elk Kept
Talk Beck Pelt To
Talk Beck Lept To
Talk Beck Let Top
Talk Beck Let Opt
Talk Beck Let Pot
Talk Beck Pet Lot
Talk Bock Let Pet
Talk Cob Kept Let
Talk Be Colt Kept
Talk Be Clot Kept
Talk Belt Peck To
Talk Bet Peck Lot
Talk Bet Lock Pet
Talk Bet Pock Let
Talk Bet Cot Kelp
All Beck Kept Tot
Tall Beck Kept To
Plat Beck Elk Tot
At Beck Kept Toll
At Block Kept Let
At Bock Kept Tell
At Belt Lock Kept

 

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Yes Yes but what debt are you holding on your so called $6 million of risky housing assets?

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"With $198 billion in loans and only $120billion in savings. The 0.75% increase in interest rates so far is going to cost the NZ economy $585 million. Wheeler has gambled and lost $585 million of NZ household disposable income trying to contain a non existent inflation."

 

kimy

That 585m figure of yours is based on ALL 198b of loans being affected by this 0.75% increase.

What about previous fixed rates....those taken out 12 months ago for 3, 4 or 5 years for example?

 

 

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No response to my question about your debt Kimy. Is it that high that you continually moan about the Reserve Bank and it's recent lifts of the OCR and you are so leveraged you are getting concerned. And please tell the truth unlike most commentating on this site.

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I have little debt, so risng OCR will make teh sectors of our economy that are struggling, worse off.

regards

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Funny you should mention him. According to business news he is about to deleverage big time. To the tune of nearly six  billion US. Obviously he feels the need to cut back some debt. 

Note no mention of your debt levels. Maybe your so called assets are crap like most on this site.

 

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Bit harsh on Kimy I think Gordon. Classing everyone's assets as crap is also a little bit extreme surely?? I take my hat off to all people who take a risk and make financial decisions now for their future - be it shares, TDs, KS, businesses or property.

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When I used the word crap I actually meant that his so called six million dollars worth of assets are probably a figment of his imagination like so many others on this site.

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:/ except if that property is capital gains/enviroment driven then the million dollars isn't worth much by the time they have it!

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Speak for yourself gordy... not others on this site.

I invest in property. Only property. Have done for twenty-five years. Debt is only about 20% of asset values - well, certainly less now that values have increased - hence very strong cash flows and equity position.

I have no complaints what-so-ever about property investing. I have always been a long-term investor, never a trader or speculator or whatever other term people like you want to use.

I intend to buy more property in the coming months and years, however always maintaining a strong cash and equity position when I do so.

My assets are not crap. Sometimes what you write definitely is.

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I would rather have my shares and involvement in private and public companies involved in retail, healthcare and property development Your Landlord. They are a lot more stimulating intellectually compared to residential tenancies. Rentals are strictly for those who are intellectually challenged and also financially challenged and therefore need to leverage.

And everyone talks crap on this site at times . That's why we are on it.

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.. retail stocks are doing it tough , with one or two well managed exceptions ( Kathmandu & Briscoes ) ... there's a long trail of tears from the others ... Postie / Warehouse / Hall-Glass ... in Oz The Reject Shop has been slammed into the ground , on just mildly bad trading news ....

 

Like the tech sector though , and the medical industry ... going gangbusters regardless of the world economic outlook ...

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I live in a house.... like lots of New Zealanders.  So residential tenacy is a good way to start.

In investing you've got to work with what you know (or come up to speed real fast!)

Given that I know residential property (and have a couple of good tricks that have worked), dairy farming and FX.... how long do you think I'd last in retail shares or running my own medium to bulk retail business?

  I've done the yards, and not that interested in "intellectual challenge", if I was I'd go back to computer programming...   Just like Fonterra's attempts to convolute their market space and that of their suppliers is going down like a basket of cold sick with many folk selling up rather than face these anti-coop issues.

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Sooner or later ?.....balderdash.

Or are you trying to pretend you can forcast interest rates 4 years out when those 5 year fixed terms mature.

 

In addition, aren't you always telling us Wheeler is sending us  into recession with these rates ?

If that were true, then rates will drop, and so those on these chesp rates will win in BOTH cycles.

 

It appears you have been a good student at BigDaddy's school of numbers.

Or perhaps yours is just a "typo" also.

 

Yes, I am more convinced than ever you were also Zanyzane...he used to come out with stuff such as this.

 

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Correct there is no 100% certainty.

I was simply pointing out that some of these figures you bandie about as fact, are either inaccurate, or simply your opinion.

When the logic is pointed out as flawed you never seem to accept that..

 

Why , for example, when we were talking about interest compounding periods did you move the discussion to "is it capital guaranteed ?"

What was the purpose of that ?

 

I also asked on that other thread what ROE you want our banks to be making.

Still waiting for that one.

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Good spotting Spottie, I thought that about him as well recently on the back of some very familar stupid postings that used to frustrate me but now happy to ignore. You've confirmed it for me really, a second   "name"' worth ignoring.

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The same ramblings about Houston?

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SK just another spruiker who if I recall is an agent or so they say. From my experience land agents are generally totally unqualified in anything or if they did qualify in anything they failed and had to resort to selling real estate. Probably in competition with car salesmen and politicians for being the most despised in society.

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Poor delicate petal feeling the burn from being caught out big time, any remaining credibility up in smoke. Lashing out at the man is rather pathetic. For the record i am not an agent of any description. :)

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But your comments are the cruellest I have ever experienced on this site. So cruel you could be a computer. No feelings for those who will never be able to buy a home.

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Haha Mr Gordon. You obviously not been on site long then!

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... some of those folks who currently cannot afford a home , but are beset by the fear of missing out , will profusely thank Graham Wheeler one day .... when house prices are comparatively cheaper in the future , than they are now ...

 

As Mr moa man says , if you think SK is cruel , you're just a babe in the woods around here , cobber !

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GBH I find it hard to believe anyone could be crueller than SK. Sometimes I think we have a new religion in the western world called Property. People at times seem to worship it . Surely there are bigger issues to discuss at dinner parties and barbecues such as what could we do for others rather what we have just accumulated.

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gordon : The owners of capital get richer ... more so now than in the past ... and that trend is likely to expand further into the future ...

 

... and those who content themselves with modest wages or salaries , will struggle and live hand-to-mouth more now than in the past , and even more so too in the future ...

 

It's true the say that the future isn't what is used to be , but it is what it is ... wage slave or investor ... your free choice to make ...

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yep the danger of capitalism is the wealth vs income balance.  too much or too little weight on either side destroys economy.

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It's not property they worship.  It's money and the accumulation of material wealth.  The idea that by being "rich" they have acheived success, have acquired status and a form of power along with "fame and fortune".  They have no compassion and empathy for others.  They fully believe in getting ahead of their fellow man. 

 

We can't judge them for following the rules though.  The system we have created teaches the belief that being rich and materially wealthy is the goal.  We hear the rhetoric every day from our governments, our business "leaders", MSM, and advertising.  Our policies, rules and regulations are written to enable this belief.  Our business model follows this goal.  The issues communities, nations and humanity face are caused by this belief. 

 

The 1% have effectively acheived this goal and further ensure that the status quo remains.  The majority are taught to emulate and follow these so called models of success.  They sometimes question the absurdness of it without ever questioning their own contribution to it.  "I can't do anything about it" is the usual response.  This is the way it's been done for so long therefore we must keep doing it the same way, there is no other way.

 

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To paraphrase:
"Any person who has been successful just gets on with life and avoids any form of publicity as they are comfortable with their position." - gordon

"You are wrong" - cowboy

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Cowboy I could not agree with you more. That is why I do not use my real name like all others on this site

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