"would be well advised not to listen to either media commentators or bank economists - does this include your piece as well?

"The recovery is coming from the export sector and only an unexpected strengthening in the Kiwi dollar will upset that growth" - so an expected strengthening that will happen because our interest rates are higher is OK?

Yes an export led recovery is needed, but it will end very quickly if our x-rate reaches 80c again.

"In five or six months time Governor Bollard will be forecasting 4.00% GDP growth for 2011"

That's a very respectable growth for times like this. No wonder property prices are not declining.

Just had to check my calander - nope its not April Fools Day.  Granted this is an opinion piece and good to share the love.

How can you think we're in the midst of an export led recovery?  Sure we might be exporting whole logs to China, a bit of oil, and a whole lot of milk powder ... but that falls well short of "recovery."  Any money flowing into these industries is simply going into debt repayment or is going back offshore so hardly supports the notion of recovery.

I agree with Anon above that you guys need to drop this mythical notion of neutral.  Neutral is whatever the economy can support.

Given the housing market is going nowhere, retail sales are subdued and employment is not yet an issue - you have not given one good reason why the OCR needs to be to 5%?  Personally I don't see much economic growth of the horizon.  But even if it did exist, economic growth is not itself a problem.

What problem are you trying to solve by increasing rates?  Non government policy based inflation?  Yeah right!

Kiwis spending the equity growth in their properties is over, and the big deleverage is starting.  Last time around consumers simply borrowed to sustain their unsustainable spending habits.  This time round will be different as that won't / cannot occur.  Bollard does not need to scare homeowners - they are already frekin out.

Property price correction will happen now off its own bat.  It doesn't need to the OCR to give it much of a nudge at all.

In my mind high OCR = high unemployment, property market collapse, and a massive impact on Agri and Business.  Gee I'm sure the Government will like that!

"Such an increase will not have a detrimental impact on our economic recovery.

The recovery is coming from the export sector and only an unexpected strengthening in the Kiwi dollar will upset that growth."

Um am I missing something here?? If our OCR goes up they way you say the NZD would bounce so much it would upset growth. Have you not noticed the strength it's gained from just 25bps?

Has Roger not recognised the fundamental changes  that have occurred in recent times. Liquidity ratios/stable funding ratios for the Banks - lower LVRs for housing lending, Positive sloping yield curves due to a lack of Uradashi flows  and collapsing credit growth even at these low rates, suggest that the neutral OCR may well prove to be nearer to 4% than 5-6% pre GFC

I think we will see OCR to 3% this week followed by a pause that will turn out to extend into the first quater of 2011

Well,the OCR may go up as Roger says but the logic he gives is absolute rubbish.  have people forgotten what the unintended consequences of high OCR. 

Personally I can't disagree with any aspect of Roger's article - barring a major shock offshore (always possible not predicable otherwise its not a shock), the OCR is headed to 5% well before the end of next year. Yes things can happen, but short of such a shock NZ's GDP will be above 3% over the next couple of years and ultimately that will put pressure on inflation 12-18 months out where monetary policy has to look - I wary of the inane bloggers who always think they know more than the people who's job it is, and who have a wider view and resources to get most decision right ! Yes they get some wrong, but the bloggers get way more wrong than them

If things change, the RBNZ can cut, but until then they will act as the data tells them. He will hike on Thursday, acknowledge some weakness in the past 6 weeks, then all other things being equal, will hike again at least once, possibly twice more before Christmas.

Roger.... with respect have you given any thought to what would happen if the NZD dropped to say 57 which incidentally is about its true value...what do you think it would do to oil prices and the on-flow effect throughout the precarious economy.

 well I'd like you to do just that and write another piece about the probability of just what Bolly is up to .. which is exactly what he is told to do.

Keep that foreign investment coming as long as humanly possible or the whole f%*$king thing goes to hell in a hand basket.

Personally I have had a gutfull of commentators and their risk appetite rhetoric... the NZD is little more than a dag hanging from the anus of the AUD and an ideal spot to launder some dirty forex monies  in a soft location that will do anything to prop it's overvalued currency and thus maintain the status quo whereby lazy jap forex traders can play ping pip clip with the fluctuations they themselves have generated.

We are in control of our own currency ...........my ass

we are in control of N.Z. monetary policy ........my ass

We have become desperate little ass licking serfs begging for a bowl of rice as trade for what have you.

have a nice day  

 .V. 

  ^

if it did drop to US57c our exporters would be quite happy, and it would be quite likely that even more of our assets would be targeted for overseas investment albeit witha NZ? company in tow

Well ain't  THAT the truth Christov!

so NZs spending on what? helps the economy cbs. Surely you are not suggesting Real Estate. The longer the economy is restrained the better at the moment surely? We exporters are doing just fine thankyou

cbs - think about it. We've gone through one of our biggest recessions in decades, and NZ's inflation rate only got slightly below the mid-point of the RBNZ's 1-3% inflation range. Low growth ain't great, but low growth and high inflation is a killer, particulary for savers who we need to encourage in this country at the moment, more than borrowers (check out our private debt levels)

You and  Steven need to understand that interest rates are driven by inflation, not growth, and there times in NZ (70's & 80's) where we have periods of low growth and high inflation. NZ has a high sensitivity to inflation for whatever reason, and despite a very fragile and slow recovery, inflation is  forecast to be very tight over the next couple of years, and that's with the modest OCR increases that the RBNZ is forecasting and needing to iniate now. Like it or not, its a choice of what is the greater evil, but frankly, the RBNZ has little option but to take the foot off the accerator now, which is all he is doing.

For some businesses that will put added pressure on no doubt, particularly for those reliant upon the NZ consumer, but that is one of the costs we are now having to pay for at least a couple of decades of borrow and spend mentality - the consumer is tapped out, knows he/she is, and is repaying debt.  Many businsses need to understand the long-term change, and those who were reliant upon that old consumer model will need to get more productive or die - easier said than done for many businesses I admit

PS - calling Bollard a fool says alot about you rather than him by the way

oh and as for the post - umm upward movement is tightening - downward is loosening - neutral is err, neutral. In  this case an arbitrary figure which is not equal to anything unless we're talking on a fixed scale like pH which I believe the OCR is not unless 10 is the upper limit which AFAIK is NOT the case.

I think the strange notion of a fixed “neutral” rate has been pretty much dealt to on this thread. 

Taking an overview might be worth a minute.  Yes we need to resist inflation, yes we need a currency that reflects trade performance for any persistent economic rebalancing – the OCR simply cannot deliver that outcome: one or the other but not both. 

Headline inflation has been restrained by the OCR at the cost of decimating the external sector, domestic inflation remained outside the policy band up to the point when most recognised the global financial crisis was in full swing, only at that point did the domestic inflationary pressure fall.

The OCR alone is not up to the task – that is clearly the new normal.  More policy options are necessary.

Lots of discussion goes on here on what those options might be but those in power need to get on to the case – there is not much time.

www.johnwalley.co.nz 

Christov - are we mean't to understand your 9.32pm posting ? Are you saying the NZD should be different to other currencies ? No country has ever had "control" of a floating rate currency - at the moment we're at the total control of the markets perception of risk - try mapping the NZD over a chart of the S&P (and I can tell you that the NZD does not drive the S&P). All countries have things that influence their currencies  that Govts/central banks at times have little direct control over, especially in the short term.