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Economic weather report: Why the RBNZ should be raising rates
Watch video on YouTube here. Watch video on our video page here. Bernard Hickey delivers an Economic Weather Report on the latest National Bank Business outlook survey of business confidence, which shows businesses expect conditions consistent with GDP growth of 3-4%. The last time New Zealand had growth that strong the Reserve Bank had the Official Cash Rate at over 7%, yet this time it seems determined to keep it at a record low 2.5%. It's time the Reserve Bank looked to start increasing it, despite apparently low inflation right now. At some stage all the fuel from monetary and fiscal stimulus both here and overseas is going to catch fire. The Reserve Bank needs to be applying the protective foam of a rate hike now to ensure the flash fire doesn't burn too hot. View our confidence charts here.
26 Comments
Gosh, I wonder what force
Gosh, I wonder what force of nature is forcing Alan to continue porking the property market....
No. Increase core funding ratio.
No.
Increase core funding ratio.
Think of savers, and exporters, tourist ops. - who else earns a 'real' living for NZ?
Q - It throttles growth funding?
A - Public-credit, in various forms; re-balance tax system; incentivise 'winning behaviours'
Q - Don't understand?
A - Do, ....... or die. Simple.
Snarlers waiting, must go. Cheers, Les.
It makes sense to me
It makes sense to me Bernard , that Bolly is trying to shake the Kiwi dollar bull off our scent ( and mine is one you wanna avoid - back into the Thai Green Curry ! ) . As the $Oz and Won ( Korea ) rise , on heightened OCR's by their respective central banks , Big Al is hoping that we get forgotten in the carry-trade stampede for yield . A " Cool Hand Luke " game of bluff , you blink or fold first . He's correctly assessing that growth in exports counterbalance the risk of re-ingniting our housing bubble . Bubble be damned . We need to export .
Currently growth is a mirage
Currently growth is a mirage based spin from government and the financial sector "“ they really believe that they can pull the same trick again "“ they might but somehow I doubt it.
Dig it up, grow it or make it "“ the route to real growth, and guess what, they all need investment.
That investment has stalled, without it any talk of growth is nonsense. As for increasing interest rate fine, up goes the dollar and exports suffer more. Great way to demonstrate the Phil Goff was right and we need another way.
2 points 1. If the
2 points
1. If the economy does grow 3-4% in the coming year, it is just a natural adjustment to a prolonged period of recession, and very unlikely a prolonged boom, so it wouldn't necessitate rampant interest rate rises
2. I doubt we will get 3-4% growth. I don't know who is feeling so confident out there. I suspect it is still "wishful thinking". Most people in business that I know think 2010 will be just as hard if not harder than 09
Apparently, next bubble to explode
Apparently, next bubble to explode is stock market! In this week's edition of Der Spiegel, the 12-page article begins by asserting that the question is not whether the present stock market bubble bursts, but when"¦
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It will have to form
It will have to form a queue behind the Dubai bubble , currently deflating . And our property bubble in NZ . Plus the GOLD bubble . All that newly created $US sloshing around the globe is propping up many a market . ........... . But what is preventing our little house bubble from popping is a guess .
I have asked around all
I have asked around all the businesses i know and no one sees a bright future for their particular business in 2010 so I am really confused how these results come about.
My own business interests that include importing, design / manufacturing /export, retail and wholesale, transportation will on balance be much the same as 2009 unless Dr Bollard gets a grip on the dollar.
This government has done nothing except spend in areas where we need to stop and stopped in areas where we need to invest.
I hope I am wrong but real growth isn't visible to me anywhere on the planet yet. Still lots of unsustainable stimulus packages but no real growth drivers.
John Walley: Agree.....the financial and
John Walley: Agree.....the financial and consumer economy is a bubble....the real economy which I hope Alan B. is looking at is still in a poor way IMHO...
Fixed rates are going to
Fixed rates are going to continue to rise as our Banks seek funds in a world getting very competitive about sourcing funds.
We still have that 60 billion hole remember.
NZers will continue to gravitate towards floating and Bollard has to match low cost of funds for consumers (which will help their consumer spending) vs fuelling a property boom.
Ideally things will balance out with the RB helping fund floating and the Banks having sufficient funds to fund their fixed rate portfolios without relying too much on overseas.
Perhaps Bollard knows what course the Govt is likely to take over Tax Reform and is relaxed because of that?
I pick ring fencing LAQCs (Property related) and increasing clawbacks on sale ( pay back the interest claimed etc) No Land tax or CGT- as they dont work.
That will kill the spruikers and competition by investors with owner occupiers for 200-400k house stone dead.
as long as bollard leaves
as long as bollard leaves interest rates at current ridiculously low levels we will continue with the same old same old ie, boom & bust & excessive investment in property
rates must be increased to more sustainable & realistic levels
My take is that the
My take is that the good Dr knows things we do not. We are so used to doublespeak from politicians that we do not hear Bill English saying, in the nicest possible way "I'm about to get serious"...
Personally I think he means it. The new government are very very much more competent than the last bunch. The last bunch were politically very astute in a Machiavellian sort of way, buying elections with dollops of money to special interests (just look at what Winston got for his racing mates). The present lot are very different and so far have been keen to take charge quietly without making too many waves. They now have the reins firmly in hand and the lead up to the budget should be interesting. In the sense of interesting times.
What bothers me is that usually under a Labour government a business can find silly ways around the problems the government creates, but under a conservative one there is less room for manouver.
You know David - i
You know David - i agree on your estimation of what the government will do. They will go half way and ring fence property LAQC's but stop short of measures such as land tax (which is personally what I think they should do). This gives them a chance to see how far they can get on one measure without being accused of hitting poor old kiwi mums and dads with a new tax. It will take some heat (and possibly any growth for a few years) out of the property market but won't result in any kind of 30% decline in values unless we also get 10% unemployment and significantly higher interest rates (neither of which is outside the realms of possibility). I reckon they will get us all hyped for a shock and awe budget in 2010 and then slap us with the equivalent of an economic wet bus ticket by ring fence property LAQC's So they will achieve a little but not a lot and should achieve their one aim of just getting another term in government. NZ won't change or learn a whole lot and we will still be far behind Aussie in the next few years.
NZ in 2010 is going to be like going to your aunties 70th birthday afternoon tea; quite boring, no surprises and you'll feel a little bit queasy after eating the cream cakes which spent too much time in the sun.
Nice analysis Sam. You may
Nice analysis Sam. You may well be right, as i say we are in for interesting times. If they really do get a grip on government spending it has to be a really good thing; in my mind far more than the LAQC/property issues which so preoccupy the fertile minds of the contributors to this site.
To me the LAQC/property issues merely transfer some money from property owning kiwis to renting kiwis and is not so bad. It is just the sort of silly things you get with Labour governments - in order to get ahead you have to do silly things. So we have high income tax leading to silly investment in a lightly taxed area.
The real problem to me is exactly the one that Bill English highlights - the government sector has grown too fast and is unsustainable.
Oh dear, I'm agreeing with a politician! That is not a good look, now is it?
@liberte: We have had boom
@liberte: We have had boom and busts at higher OCRs......this is I think the first time the OCR has been this low? and where "real" rates are determined by private investors and not the ocr, so we have never been here.
@Sam: I think that's the best you can hope for...i think its more likely she''ll have a fit and have to be carried off to bed...though A&E is possible.
regards
@RW: Dont fully agree. We
@RW: Dont fully agree. We need to fix the skewed investment landscape, but not just housing related, the financial system for mom and pops needs fixing just as much otherwise mom and pops will still avoid it as without fair access to information they will just dump it in deposits or get burned as they have so far...
regards
Always in arrears, with Analysis,
Always in arrears, with Analysis, not up to date.
After the Ball was over...Looking back over your shoulder. The National way.
http://www.nationalbank.co.nz/economics/publications/propertyfocus/Prope...
Steven, yes the finance industry
Steven, yes the finance industry is one big fraud. People outside the industry give money to insiders who take a massive cut. At its simplest people lend money to the bank who then lend it on, taking a 50% cut along the way. At its worst they gamble with it ("finance" companies - really property developers in disguise). You would think there was a better way.
We are in exporting and
We are in exporting and also making things mainly for people who export, and I concurr with Selwyn's view of the chances of growth in business activity in 2010. There are territories where we see growth, but they have some regional thing happening that is driving their particular markets and there is no general feeling of uplift in activity across the whole market. There is some restocking going on and that is a surge but it's off a very low base and that sometimes triggers future sales predictions in forecasting software at a faster rate than is true.
Territories that had bubble type activity in 2007 and early 2008 are moving as slowly as a wet week. I have a couple of territories just entering their second year with zero orders!
I also wonder how these stories get any real traction but I guess human beings tend to be optimistic especially the type of people that own their own small businesses so maybe we just need people like Bernard to look through the figures rather than just knee jerk into supporting once more the traditional response to such an unlikely scenario actually happening.
I absolutely agree we have
I absolutely agree we have to close the gab with the Aussies... We can pretend we are a big country but we only really have our big neighbor to lean on
Time for my little bit
Time for my little bit on Optimism again.
http://www.inthesetimes.com/article/5024/the_dark_side_of_the_bright_side/
No disrespect Bernard, but I’m
No disrespect Bernard, but I'm glad Governor Bollard doesn't take your advice.
The reality versus outlook can be quite different, and going by what I see on the ground I would suggest that people in business are optimistic, but not overconfident.
In other words, there is nothing to suggest that we need anything to "ensure the flash fire doesn't burn too hot" as peoples spending habits are still somewhat conservative.
The proof will be post Christmas, which we will just have to wait and see.
raising interest rate = fuel
raising interest rate = fuel our NZD. This would kill NZ exports but then i can get some cheap LCD screen TVs
I don’t think Stephenie Meyer
I don't think Stephenie Meyer has sold the rights to Breaking Dawn. there going to be a Breaking Dawn movie? If you are not sure of that, then do you wish there is going to be
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