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RBNZ holds OCR at 2.5%, but warns of imbalances (Update 5)
September 10th, 2009
The Reserve Bank of New Zealand has held the Official Cash Rate (OCR) at a record low of 2.5% and has renewed its pledge to keep it at or below that level until the latter part of 2010. (Update 5 with comments from Bollard at Parliament’s Finance and Expenditure Committee hearing in Wellington).
But Reserve Bank Governor Alan Bollard took the unusual step of warning any economic recovery was likely to be patchy and unsustainable if the exchange rate kept appreciating and the housing market recovery undermined any improvement in household savings.
Click here to see a replay of the press conference held at the Reserve bank this morning.
“For growth to be sustained in the medium term there is a need for improved competitiveness in the export sector and a continued recovery in household savings,” Bollard said in a statement with the RBNZ’s September quarter Monetary Policy Statement.
“This rebalancing is required to stabilise New Zealand’s external payments position,” Bollard said. “If the exchange rate were to continue its recent appreciation and/or the recovery in house prices were to undermine the improvement in household savings, then the sustainability of the present recovery will be brought into question,” he said.
Meanwhile the RBNZ said in its quarterly update of economic forecasts there was more evidence the decline in economic activity was coming to an end “and that the patchy recovery is underway.”
This was partly due to a recovery in New Zealand’s trading partner economies in the June quarter, which was likely to continue in the short term, it said.
“Domestically, retail spending appears to have stopped falling, following a rise in net immigration and a pickup in the housing market in recent months,” Bollard said, noting however that the medium term growth outlook looked weak.
“We expect household spending to grow only modestly given weak income growth and a reduced appetite to take on debt,” he said.
“Business profits are under pressure because of the low level of activity and the elevated New Zealand dollar; this limits the scope for employment and investment to rebound quickly.”
Bollard said annual inflation was well within the 1-3% target band and was expected to track comfortably within the band over the medium term.
“As we have said previously, the forecast recovery in economic activity is based on monetary policy continuing to provide substantial support to the economy. We expect such support will be needed for some time. As a result, we continue to expect to keep the OCR at or below the current level through the latter part of 2010.”
What I think
Alan Bollard has rightly warned about the economy’s imbalances threatening any recovery in the long term, but he has done nothing about it. New Zealand’s property obsessed populace are making the same mistakes all over again, aided and abetted by banks scared of lending to business.
New Zealand’s banks lent over NZ$6 billion to farmers and homebuyers in the first eight months of 2009, yet reduced lending to businesses by NZ$3 billion. New Zealand’s current account deficit is still rising and the nation is still sucking in foreign debt to pump up property prices. Sound familiar? This nation has learnt nothing despite all the tellings off by our headmasters at the Reserve Bank, Treasury and the ratings agencies.
Yet Bollard still appears to be doing nothing. He could fire a shot across the bows of the housing market by warning of rate rises to come sooner rather than later. He could have stopped it in its tracks by putting up interest rates. Instead he is holding the Official Cash Rate at a record low of 2.5% and promising to keep it there for another 12 months. He is adding fuel to the fire.
Critics would argue any hike in the OCR would simply push the New Zealand dollar higher and make the imbalances worse. I doubt that. The currency markets are utterly focused on US dollar weakness and the overall global outlook. They have already priced in tighter Australian monetary policy and we’re just along for the ride. Markets already believe Bollard will have to hike the OCR by early next year, not the latter part of 2010 that he has pledged.
Bollard could also suggest a tightening of rules about capital adequacy for banks to discourage them from lending so heavily to farmers and home buyers, but he has given no indication he will do that.
Bollard appears to be comfortable as a spectator to a slow motion action replay of an economic car crash that he has seen before.
Why won’t he do something about it?
It is clear since the June Monetary Policy Statement that the housing market is firing up again. Auctions are full and clearance rates are down. Open homes are chocka-block with eager buyers brandishing their mortgage approvals at 5.5% interest rates. It’s amazing what you think you can afford when you believe interest rates will stay low for the foreseeable future (which for most people is about 2 years).
Inaction by the Reserve Bank simply invites the inevitable sovereign credit rating downgrades and a loss of international investor confidence that will provoke a much harder landing in years to come.
Is that our only hope?
Perhaps Bollard should simply ask for the ratings agency to hit the fast forward button and downgrade us sooner rather than later. That seems to be the only way this version of economic ‘deja-vu’ will end.
Bollard seems intent on doing nothing himself.
ASB economist Jane Turner
Turner said a key change in Bollard’s statement was “walking away from the beefed up easing bias of July.”
Another is that, despite substantially tighter monetary conditions, the inflation outlook has not fallen – in other words the RBNZ’s assessment of underlying inflation pressures has been lifted substantially.
We expect the RBNZ will hike by June next year (previously July). However, the risks are skewed to an earlier start.
The main implication of today’s MPS is that the RBNZ is very unlikely to stand in the way of any further climbs in the NZD and wholesale interest rates. In the absence of a circuit breaker we expect those rates to continue trending up. The door to relatively low fixed-term rates will steadily close up, though short-term rates will remain low for 6 months or so.
The RBNZ’s next policy challenge will then be backing away from the expectation that it won’t lift the OCR until the latter part of 2010. Doing so will be interpreted (rightly or wrongly) as a signal the start of the tightening cycle is only a few meetings away.
JP Morgan economist Helen Kevans
Kevans said a key argument not to lower the OCR any further would be if consumers reverted to their old ‘borrow and spend habits’.
While the RBNZ will likely maintain its current dovish tone in the statements accompanying the upcoming October and December OCR announcements, we do expect that Bollard will shift away from the current easing bias in early 2010. The RBNZ said today that “until the risks and uncertainties about the outlook have acceptably reduced we anticipate keeping the OCR low.” By year-end, though, we believe the synchronized global economic recovery will be gathering steam, and the domestic economy would have begun to expand; thus, we maintain our forecast that the first OCR rate hike will be delivered in July next year.
The RBNZ maintained its forecast that a recovery will get underway in New Zealand toward year end. This is in line with our forecast which calls for positive GDP growth in 4Q09, following seven straight quarters of decline. The RBNZ said, though, that the forecast economic recovery is based on an easing in monetary conditions, which have tightened considerably thanks to NZD appreciation (chart). If monetary conditions fail to ease, the recovery forecast to get underway later this year will be “put at risk” and the RBNZ would need to “reassess policy settings.”
Indeed, stronger NZD is the main risk to an imminent recovery. NZD has gained more than 4% against USD since the last OCR decision, so it was no surprise that Bollard again today voiced his anxiety about continued NZD strength. The high currency is hampering a prospective export-led recovery and the much-needed rebalancing of growth away from debt-fuelled household spending, a rebalancing needed to promote a sustainable recovery. In recent months, the Governor has oft voiced his concerns that, amid signs that the prolonged downturn in the economy has bottomed, consumers may revert to their old “borrow to spend” habits; this, we believe is a key argument not to lower interest rates any further.
Bollard talks at FEC
Reserve Bank Governor Alan Bollard appeared before Parliament’s Finance and Expenditure Committee later on Thursday. He made the following comments. These are repeats of Tweets and I will fill out with fuller quotes later.
RBNZ’s Bollard tells parliamentary committee that he didn’t want to cut the OCR again as wanted to avoid fueling housing market bubble
RBNZ’s Bollard says he looked at cutting the OCR but decided it wouldn’t have much impact on dragging the NZ dollar lower
RBNZ’s Bollard says would like to see flattening of tax structure around housing investment
RBNZ’s Bollard says most obvious part of tax structure to look at is property investors ‘flicking on’ properties for tax reasons
RBNZ’s Bollard says not keen on using capital adequacy rules to slow bank lending into housing market
RBNZ’s Bollard says capital adequacy rules not very sophisticated tool
RBNZ’s Bollard says will watch the outcome of Government’s Tax Working Group closely
RBNZ’s Bollard says disappointed global financial reform won’t include freeing up of currencies ‘hiding behind US$’
Tags: Alan Bollard, ASB, Jane Turner, OCR, RBNZ, September MPS
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September 10th, 2009 at 9:08 am
Wonder if ASB will keep that record low floating rate – weren’t they thinking Bollard would drop the OCR today?
September 10th, 2009 at 9:09 am
Steady as she goes. Yeah, right.
Anybody looked at the depth sounder recently?
September 10th, 2009 at 9:12 am
Totally agree with your summation Bernard. Does anyone know when Bollard’s contract is up for review/renewal ??
September 10th, 2009 at 9:24 am
Bernard,
If you think mistakes have been made, and are being made, which I agree with, then IMO one must ask why.
It seems to me there are only a few options:
1. A lack of real understanding of the way economies work.
2. Incompetence.
3. Caught in a political straight jacket.
4. That it is actually intentional.
It seems to me that #1 & #2 can only be accepted a few times. After that one must question.
Maybe the recent “invention” of the “business cycle” or “rowing of the economy” is intentional.
Listening carefully to Alan Bollard on Radio New Zealand National a few weeks ago, I did note a particular central bankers way of viewing things.
It is a view I question.
So a basic question: Is the aim of Alan Bollard the best financial future of the populace of New Zealand?
September 10th, 2009 at 9:29 am
Bernard,
+1
September 10th, 2009 at 9:33 am
This is the Alan Bollard interview, with my transcript:
http://neuralnetwriter.cylo42.com/node/1737
September 10th, 2009 at 9:45 am
So he thinks pulling a Greenspan will help? Oh Vey!
September 10th, 2009 at 9:47 am
In years to come Bollard will be as reviled as Greenspan is now. He demonstrates moral and intellectual cowardice on a gargantuan scale with these latest pronouncements. Worse, he treats the public as idiots with his apparent inability to see what happens when hyper-stimulatory interest rates are directed at the NZ housing market over a prolonged period.
In essence he knows, as Bernard has succinctly put it, that the last 10 years of Central Bank/Government misrule has created an economy based on a house price index with a few other bits attached. It appears his only motivation is to prevent the final break down of this ultimately doomed model on his watch.
Unfortunately there appears nothing the private citizen can do about this as Bollard and his gang seem immune to rationality…….other than prepare themselves for the inevitable collapse in the NZ currency/economy.
September 10th, 2009 at 9:56 am
Where to run to…….
We are stuffed!
September 10th, 2009 at 10:16 am
Your heading the same way as us Irish folks, property down 30-60%. We also have 12% unemployment now. What is Bollard and that Govt at?
September 10th, 2009 at 10:16 am
Inflation.
A few years of inflation will have the twin effects of reducing the debt burden and depressing the exchange rate. It would also have the ‘bonus’ of making everyone feel a bit poorer and therefore reduce spending on consumption.
Before jumping on this give it a bit of thought. There are obvious downsides to inflation, but it may be the only option available to NZ. The alternative is for debtors (both individuals and the country as a whole) to knuckle down and repay the debt for real. That is only going to happen with a good dose of coercion from the government (see under housing bubble, NZ) so seems pretty unlikely.
September 10th, 2009 at 10:18 am
Andy, Bollard takes his direction from the govt. Bollard is counting on the market raising mortgage rates gradually until the stupidity in the property sector stops. Key and English are counting on Bollard getting it right. He is counting on them providing policy.
They are determined not to provide policy. The media print whatever spin they are sent. The peasants are behaving as humans do. It’s a case of save yourself Andy.
September 10th, 2009 at 10:29 am
Stick by your guns Alan and don’t listen to those experts and pundits who forecast doom and gloom and a ‘30% drop in house prices’. The majority of the country are right behind you as we need a strong Reserve Bank. So far you have done a good job with the tools you have. They are only forecasting that, because they have missed the boat.
September 10th, 2009 at 10:35 am
Interesting points Steve Netwriter.
I have wondered if he was playing a different game, i.e. we look at him as the worst rugby player of all time, yet he is actually playing soccer.
Does he want a downgrade? Does he want to try and get inflation humming across all sectors? Does he want to just sit and wait till others have to raise their rates therefore stemming the amount of money coming into NZ and therefore tightening up money conditions?
I have no idea, I am in the Environmental fields, not economics, but it is fastinating to watch and try and second guess.
Would love to sit down and have a beer with him, get him sloshed and start talking.
September 10th, 2009 at 10:46 am
Paul – I suspect you would need very deep pockets to achieve your goal.
September 10th, 2009 at 10:50 am
Paul
I think one strong point to note is that NZ will be raising rates last not first. Underneath this is a desire to take NZ out of the carry trade hot money flow and hope investors lose interest.
That’s why there has been such a buy up in the A$ and NZ$ recently. The market story has been 1) That the Aussies will raise rates shortly – that’s completely been shot down by the poor retail sales number yesterday and weak exports last week and 2) That NZ will not be far behind.
Markets are notoriously poor in predicting interest rate moves. I say this as someone who used to trade the short end of the market. Overseas investors have a very different view to NZ than those of us living here do.
They simply see a very straightforward carry trade…..stable country and a gift of a nice carry every year. Borrow in Yen, $ or Chf and whack it into NZ.
It suits NZ as it needs to fund a massive overseas debt position.
Our terms of trade just came out -9.0%……..expected number was -2.5%.
People can buy the NZ$ all they like but we are seriously struggling.
I’ll repeat my call for the RB to heavily intervene in the currency. It’s a complete no brainer.
September 10th, 2009 at 10:52 am
Haha, but it would be so worth it! (getting Bolly sloshed I mean)
September 10th, 2009 at 10:53 am
Interesting Bernards comments, which seems to have the support of most bloggers,A hypothetical question to Bernard,would he be a potential starter for Bollards job if and when it becomes vacant? and if not? why not? Or if so why so?.
September 10th, 2009 at 10:55 am
Apparently, Fraser, the mania to get on the Titanic was so strong that on some classes they had to have a ballot to get tickets for the privilege of being on board. Balloted ticket changed hands at vastly inflated prices over the intrisic value of the cost of travel.
I think I’ll wait till the ticket reflects the cost of travel, and then decide if I want to travel at all!
September 10th, 2009 at 11:03 am
Fraser Says:
September 10th, 2009 at 10:29 am
Stick by your guns Alan and don’t listen to those experts and pundits who forecast doom and gloom and a ‘30% drop in house prices’. The majority of the country are right behind you as we need a strong Reserve Bank. So far you have done a good job with the tools you have. They are only forecasting that, because they have missed the boat…………………………………..What!!!
That would be the most ridculous statement I have read to date on this site, but completely forgivable as you are obviously insane.
Ill remind the community of an earlier blog I posted giving three possibilities for “Bolly’s complete and utter capitulation to the circumstances as they are………….
Let’s skip option 1 and 2 and stay with three He (Bollard) ,I believe is under direction to steer the ship in a direction on behalf of those interested parties who now see themselves as New Zealands underwriters, further it seems that, protecting thier interests at ALL costs while offering sympthetic drivel to the disenfranchised.
At the risk of being booted off the site, this is without a doubt the most gutless display of monetary policy leadership I have witnessed to date.(NZ)
I’m well aware he Bolly is just the asskick who is on his way out with a nice fat well done.
Well my son , go on have a look just what you have done, you may argue… F..k all ……and you’d be right for once…. but next time you take a drive down country it wont be bras and socks hanging off the fences, it’ll be the farmers and exporters you just hung out to dry.
The only consolation here is Bill’s gonna do the same to you when he’s done with ya!!
What Is Monetary Policy……….. hey that spells WIMP…… coincidence….??
September 10th, 2009 at 11:08 am
Good points Raf. I would add that the linkage between the OCR seems pretty weak – other factors such as immigration are arguably much more important, and just think back a few years to when the RB was apparently trying to dampen the real estate bubble by raising OCR – to little effect. Perhaps they HAVE learnt from that episode. I would suggest that if the RB/govt really do want to make an impact on the real estate bubble (as they say) then they need to try some levers that are stronger than the OCR. How about making it harder to get a loan (eg capital ratios)? Or making property speculation less attractive (eg tax changes)?
I think that many commentators have forgotten that a few years ago they were all castigating the RB for raising interest rates just because of the real estate bubble when it was having such severe impacts on the real economy (and making little real difference to the bubble because of the various decoupling forces between the OCR and the ability/willingness of people to borrow for property)
September 10th, 2009 at 11:09 am
So I guess I can’t interest you in ticket, then Christov? You’ll be able to flick it on to someone else at a tidy profit before the boat sails….
Excellent post, Sir !!!
September 10th, 2009 at 11:15 am
Crikey Jill, then we could end up with a “Sir Bernard” or “Sirbernie” !
September 10th, 2009 at 11:15 am
I’m not being a pessimist as with downturns there is opportunity we just have to adapt but this is how I see it playing out.
Next 6 months would be a good time to get out and sell any investment property that has you a little over-exposed as the housing bubble reinflates over the summer period. Naturally, there will be inflationary pressures in this time but before its starts to hurt things will crash externally in the US and Europe and the second part of the “W” depression will hit us – the so called recession we have seen to date will seem like a walk in the park when this next one hits. Result in NZ will be increased (and quite significant) unemployment and very rapid deflation of housing bubble however no inflation but something even scarier – deflation. By the end of 2010 expect to see deflation settling in as everyone is scared s#%$less about what a mess the world economy and NZ is in and we all pull in our horns and stop spending – no spending no inflation. Strategy that I have been working on for the last 6 months is to hunker down sell my investment property to the next mug and hit the mortgage on the family home as hard as possible to repay debt as fast as. Thing that really worries me right now is keeping employed and still having work.
September 10th, 2009 at 11:23 am
So; CBS68; You’ve got a tickets for sale as well? Who’s going to buy them? Apparently Fraser wants’ one or two. Or do you, Fraser?
I know Wally sees inflation, but I have to think you’ve got this one nailed, CBS.
September 10th, 2009 at 11:35 am
Got one ticket left which I’m hoping someone wil be keen to take on – hell I’m even prepared to sell it on book value because thats the sort of guy I am. There are people out there who still don’t understand the full scale of NZ’s issues re: housing and our asset bubble and think that the $400k house they buy now will be worth double that in 5-years time – yeah right. The party cannot go on for ever.
Wally, Raf and I have been sharing a little banter about inflation or deflation over the last week or so with the main point of difference being what is worse. I fall on Raf’s side that deflation is what we are going to see and that is scary because its much worse than inflation. Not too despondent though because with change comes opportunities. We just need to adapt to the new environment whether that means actually having to save BEFORE we go out and buy the things we want thats not too bad and will be a good lesson for those of us who brought into the excesses and living on credit for the last 5+ years.
September 10th, 2009 at 11:37 am
Wally Says:
September 10th, 2009 at 11:15 am
Crikey Jill, then we could end up with a “Sir Bernard” or “Sirbernie” !
Nah nah Wally…. I think it would be Bernardo’s, aint that someone what takes care of those who can’t care for themselves….?
September 10th, 2009 at 11:48 am
Harriet, which ever way you look at it, this country is stuffed. We are in the hands of the credit agencies, not our govt.
September 10th, 2009 at 11:55 am
Now, now, Wally ! You’re sounding down in the mouth ( most unlike you!). Things may be about to go from bad to shocking, but “smile and wave”. There’ll always be, interest.co.nz
September 10th, 2009 at 12:03 pm
DON’T BLAME ALAN.
Although I disagree with his “do nothing” strategy, i can understand his reasons.
1. He is only a civil servant with a mandate of only “inflation” control…he do not have a “twin” mandate of “economic growth” unlike the Fed.
2. If he raise interest rate which will raise the exchange further, our exporters will crash and burn from their already overburden debt overload…think Fonterra “between a rock and a hard place”
3 NZ Property speculation/investment obsession is not only a function of interest rates but more a function of poor governance by our Politicians both local and national…think failed Finance Companies, Dodgy public companies, failed supervisory commissions etc etc. New Zealanders just don’t have much investment outlet that they can be confident of…therefore the excessive rush into property “investment”.
4. It is not his job to “pick and choose” what New Zealanders should invest in with their capital, neither is it his job to built the infrastructure for New Zealander investors. That’s the Goverment’s job.
He has no choice but to deal with the cards he has….interest rates and “talking”…like saying “go ahead and do stupid things like invest in properties but don’t blame me if you go bankrupt” unfortunately nobody is listening…
I don’t blame him, I am taking my own actions to secure my own retirement future….
Good Luck ….
September 10th, 2009 at 12:03 pm
Has anyone read Brian Easton’s column in the latest Listener – “Reliving the Horror of the 70s”? There’s also a cute picture of one Mr Muldoon to remind us of what went on only 30 odd years ago……..
September 10th, 2009 at 12:07 pm
largely in agreement with your post kin – in the absence of any policy direction from his political masters – Key and English – he is stuck between a rock and a hard place himself. Not the best defence as in “I was only following orders” but as you say he is playing with the cards he has been dealt and he’s not getting much help from Tweedle-Dee and Tweedle-Dum
September 10th, 2009 at 12:22 pm
Wooly Bully Bolly is flapping his gums , and doing nothing , again . Bozo , whaddaya think you get the $ 500 G for ! Do something . No good whittling on that we should think of the country’s parlous B.O.P. situation , before we launch into another house buying spree . Lunatic , the LAQC rules are still in place ! Get that repealed and you’re in business……..Geez Louise , dude……….You sure are testing the public’s patience .
September 10th, 2009 at 12:26 pm
Yes it’s been a frightful week Harriet, blooming copper shares up $85000 and no beer in the fridge. Seems they found more gold and then Goldman put out a buy copper signal and a very nice lady named Penny wrote a corker article on my lot in The Age. As if that were not enough to worry about the Kiwi dropped 2 cents v the aus.
I don’t know which way to turn but I do know Noddyland is adrift on a sea of debt with the skipper, first officer and pilot rowing away in the only lifeboat.
September 10th, 2009 at 1:00 pm
Show me someone who doesn’t have a vested interest in the housing market and I’ll show you a rational decision or balanced report.
-MP, PM, Reserve Bank Governor….
-Banks & loans agencies
-Real Estate through to Building industry
They will report what they want people to hear and react too, protect their own pockets, rather than accept some bad medicine for the overall benefit of the country.
Kick the Banks sponsored economist news from the radio, TV and papers as it’s giving the people of NZ a rose coloured glass green shoots review of the NZ/World (plus are advertorial) and get real independent economist on.
People in power need to be making the right decisions for the country.
Give people the choice to pay off $1500 in debt or buy a new TV and guess where they will jump.
The housing market needs no more debt, just because people think they will get capital gains, which doesn’t help the overall country to make a living.
September 10th, 2009 at 1:28 pm
Aside from the comment that before buying a house you should think about the export sector it was hard to fault his position on the OCR. Property prices are off 10%, the market is stabalizing due to reduction in supply which is hard to argue with, ipso facto more houses will be built and more will come on the market which will temper any rapid run up in prices.
Most of my friends have used the reduction in interest rates to decrease the length of their mortgages.
There is no evidence anywhere (aside from conspiracy theorists) that we are returning to property speculation again, there are no funds available for that sort of thing otherwise the finance companies would all be coming out of moritoriums.
Business lending is down of course because we are in a prolonged recession, always happens and is a demand problem.
September 10th, 2009 at 1:40 pm
Australia just had worse than expected unemployment numbers -27k ag -15k.
They’ve had 3 bad numbers in 3 days….building, retail sales and now unemployment. Their exports were down also last week.
Rates are going nowhere.
They have the same problem as us. They owe $660bln overseas. Poor Qantas can’t even fund itself from cash flow.
Credit crunch Part 2 is just round the corner.
September 10th, 2009 at 1:45 pm
One other thing – the NZ$ is ridiculously high at the moment and only an idiot would support it being there. Surely all you pro-rates rise people realise that if we increase the OCR the NZ$ will get even stronger? Also the ridiculous comments about how banks lend their money to property purchases rather than businesses – it is entirley their choice who they lend money to – how would you like somebody else telling you what to do with your money if you were a money lender – its none of your business. If you think more money should be lent to businesses, take a home loan from one of these Aussie banks (you keep berating) and then lend your loan to a business – best of luck.
Why doesn’t Kiwibank, who you all love and believe the Kiwibank TV ads undercut the nasty Aussie banks – competition is a great thing – perhaps because Kiwibank likes to make a profit too and keep employing people in NZ.
September 10th, 2009 at 1:48 pm
Sorry to keep butting in – but what are you people on about with the obsession to own property in NZ – do you realise more people rent here than own their own property. Other countries throughout the world, it’s virtually a crime to rent and not own!
September 10th, 2009 at 1:50 pm
@Steve N: I tend to go for 3 & 4.
Anything he does is going to have an impact, and he must consider doing nothing the lesser of two evils….I have to wonder just how fragile he thinks NZ and indeed the World’s recovery is…..maybe he’s really afraid that its just so shaky that he risks a step type effect from even a small change. Im sure JK etc must also be looking….and watching….
@Andy H: No way is Bollard in Greenspan’s ilk….I think you are being really unfair, Greenspan can be blamed for this crisis by and large, Bollard no. Private citizen’s voted in National who would have done more in following Greenspan and his ilk’s economic path than Labour (not that i think Labour were much better) if this had not collapsed….Private Citizen’s have and are borrowing insanely, its private citizen’s fault first and foremost….their actions, their penance….
regards
September 10th, 2009 at 1:54 pm
@Fraser: I dont think its crazy to own ones home…I do think its crazy to speculate in what looks like an overheated market that could crash quite seriously and do NZ’s economy serious damage. This is what we (certainly I) go on about…..
regards
September 10th, 2009 at 1:55 pm
What’s an ” ilk ” . Is that the offspring of those Canadian beasties with the big antlers ?
September 10th, 2009 at 1:57 pm
Hi raf,
if part 2 of credit crunch is just round the corner, then it might just provide some balance to this imbalanced economy or housing market. Where did you read those news from? I am unable to find it in local media. I only see mostly good news recently and ie. green shoots, recovery, and survey with good confidence level and people are starting to consume and so on….. but can’t see anything of those news you mentioned. It would be good that you could share more with us. Thanks.
September 10th, 2009 at 1:58 pm
Bernard,
Thanks for asking the question on capital adequacy. Perhaps a follow up would have been in order?
I certainly wasn’t convinced by Bollard’s response. There are no “sophisticated” ways of managing the economy but it’s a lot more proactive than the silly OCR.
Capital adequacy worked fine in the “old days”. If he is serious about attacking the debt mountain (which incidentally isn’t his job) then restricting credit by upping capital requirements is absolutely the way to go.
Which begs the question: Has our Finance Minister gone AWOL? Who exactly is in charge of creating the conditions by which we can reduce the imbalances? Bollard only has the OCR to play with and that is linked to the CPI so who is doing the rest of the work?
September 10th, 2009 at 2:11 pm
@Fraser : NZ$ Ridiculously high? Consider:
Last 10 year average rate of
NZ$/A$ = .8531 (currently .8069)
NZ$/Yen = 66.49 (currently 64.42)
NZ$/Euro = .5058 (currently .4809)
Sure against the two economies hammered hardest by the GFC, (USA & UK), we are stronger, but is that any suprise?
September 10th, 2009 at 2:24 pm
Man I love reading all the comments on here – some I agree with whole-heartedly and others not so much, but at the end of the day only time will tell who picked it right and who picked it wrong. And reading the comments makes you stop and consider things from other angles – surely not a bad thing.
For me personally, I’ve learned so much from you guys and while I haven’t radically changed the opinions I held before I stumbled upon this site I’ve certainly fine tuned them thanks to the pearls of wisdom I’ve picked up here. What’s good news for one person is bad for another and regardless of what Bolly, JK or BE do you can guarantee there’ll be winners and losers.
September 10th, 2009 at 2:24 pm
AND @ Fraser:
“… NZ – do you realise more people rent here than own their own property. Other countries throughout the world, it’s virtually a crime to rent and not own!”
No I didn’t know that, and in fact I’d have to do some more checking but I did find that:
“in 2006, 68 per cent of New Zealand homes were owner-occupied.” Mary Holmes.
http://www.guide2.co.nz/money/questions/investing/does-nz-invest-more-in-investment-property-than-other-markets/6/10091
So I’d have to be skeptical about your comment.
September 10th, 2009 at 2:27 pm
Good point , Harriet . I heard that on the radio , too . On average our dollar is only 4 % overvalued against our trading partners . 14 % against the $US , and that is hardly due to our healthy economy , is it ! Looking at the long-term statistics , show our dollar to be where it should be …….Instead of an ” easy fix ” to the economy by jaw-boning the dollar down , we need to do some hard work , and to fix some tax/investment anomalies .
September 10th, 2009 at 2:27 pm
Steven – Bollard’s failure is not a recent phenomenon. Back in 2004/5 when the housing market was really getting out of control and with it the debt problem he had a marvellous opportunity to get on top of it by hiking rates rapidly and decisively. He had the justification then that inflation (which everyone tells me is his sole perogative) would clearly head towards the top of the RBNZ target over an 18 month timescale. It did and he wasted the opportunity and failed to react by hiking rates rapidly.
His incremental 1/4 point increases were a smokescreen for his desire, like all Central bankers, to play along to the illusory wealth generated by housing bubbles. Yes it would have caused more economic pain back then – but it is as nothing to the economic pain we are in for when this really does blow up in our faces. Debt is like dogs++t on the bottom of your shoe – once its there its damn hard to get rid of.
As the cockney gangsters say in all those Guy Ritchie movies……’Bollard has got previous’.
September 10th, 2009 at 2:31 pm
Quote:
RBNZ’s Bollard says not keen on using capital adequacy rules to slow bank lending into housing market
RBNZ’s Bollard says capital adequacy rules not very sophisticated tool
So there’s the answer to that question. Here is what he prefers:
RBNZ’s Bollard says would like to see flattening of tax structure around housing investment
RBNZ’s Bollard says most obvious part of tax structure to look at is property investors ‘flicking on’ properties for tax reasons
September 10th, 2009 at 2:44 pm
Thanks for that veedub.
So what does that tell us?
It translates as – ‘Yes I have another tool other than the OCR – capital adequacy rules. But I will not use that tool, claiming that it is ‘unsophisticated’ (which means anything I want it to mean).
Instead I will abrogate responsibility and say that any solution lies elsewhere outside of my remit – knowing full well that the incumbent politicians will find in nigh on impossible to in effect take deleterious action against a section of their own electorate (despite the benefit to the nation as a whole of that action).
Once again – cowardice in high places.
September 10th, 2009 at 3:12 pm
Bang on Andy H, but you can’t blame Bollard for leaving the bomb for the govt to defuse. The fun will be when Bollard has to raise the ocr. The market mob expect this early in 2010 rather than later and they expect the rise to be steeper. Before that day comes, the banks will already be lifting rates.
September 10th, 2009 at 3:20 pm
OCR decision: Inexplicable!
The Reserve Bank has kept rates on hold again today despite overwhelming evidence that constrictive financial conditions are continuing to destroy New Zealand’s tradeable sector. Today’s announcement came with the usual lip service to the unjustified level of the currency, but yet again it was all talk and no action. This decision to put rates on hold already has, and will continue to damage New Zealand’s exporters say the New Zealand Manufacturers and Exporters Association (NZMEA).
NZMEA Chief Executive John Walley says, “Inflation expectations remain low and financial conditions are stifling the real economy; surely the need for a cut is obvious. Perhaps underlying this stasis is the fear of demonstrating yet more failure of the one target one lever approach – maybe you don’t touch the lever if you are pretty certain it is broken.”
“The need for low rates was obvious to the central banks of the United States, the United Kingdom and Europe who all have official interest rates of one percent or below, and in two cases resorted to Quantitative Easing, but apparently New Zealand is different.”
“It is time that the Reserve Bank got real about our growth prospects in the traded economy. If monetary policy settings are left as they are, then another bubble built on yet another round of land and property speculation fuelling domestic consumption will quickly burst, leaving the real economy in an even more dilapidated condition,” says Mr. Walley.
“The Reserve Bank Governor seems fearful of changing the rate; this is clear evidence of monetary policy failure and it is time for the policy makers to act. Surely they cannot just stand on the sidelines and watch all this nonsense happen. The OCR only serves to shift the pain from one sector to another. A credit volume control tool needs to be given to the Reserve Bank so that inflation can be managed without destroying the tradeable sector.”
“More talk will only deliver the same worrying outcomes we have seen already.”
Enjoy, Les.
September 10th, 2009 at 3:31 pm
Les, the NZMEA should talk to a respected PR company in this country.
The “All Black” only have support because of our Rugby Culture.
September 10th, 2009 at 3:42 pm
Les : Good to see you in full cry , again . The treatment worked wonders ! But we are already on the cusp of another surge in our overpriced housing market . The need is for the Finance Minister to wake up , and make some fundamental policy changes . They seem to be using the excuse that changing anything wasn’t a part of the Nat’s election platform . Which leads us to booting them out in 2011 , and who’re we gonna vote back in ? Scuppered by useless choices on the left and the slightly less left . We are stuffed !
September 10th, 2009 at 3:45 pm
Hickey : Stand up , man , and form your own political party . Your country needs you ! If Bob Jones can garner 20 % of the vote , you oughta get at least 30 % , …. oops , sorry , 30 % isn’t a figure you use anymore .
September 10th, 2009 at 3:46 pm
“Nz’ers now know that there appitite for housing can cause collateral damage for the enconomy… by causing banks to borrow more overseas, up’ing the exchange rate, and hurting exporters… they need to think about that relationship”
This statement is horrendous. Basically he’s asuming the average home buyer knows anything at all about economics past what a banker or real estate agent will teach them. And worse still he is placing the responsibility of overall economic health of the nation onto the individual and not doing anything himself.
When individual desires for wealth are hurting the country as a whole, then government policy has to step in.
His thinking would be the same as the thinking that would allow shop lifting, but suggest people don’t do it because it hurts the retail sector which we all need and we will be worse off overall in the long run if you continue shop lifting, so stop it!
You can’t suggest people stop greedily buying investment properties when rates are low and banks are keen, you have to give a disincentive with policy.
Maybe his complete misunderstanding of ‘the market’ highlights his weaknesses in this area as he incorrectly projects his own intelligence into joe blogs investor. Hire someone who understands the market and is not amused and amazed by its reactions and we might actually get somewhere
September 10th, 2009 at 3:50 pm
@ Roger Thompson – naughty but funny. Don’t let him put you off forecasts Bernard, theres many a man and women that has had a go and been wrong – although in 2-3yrs time your 30% drop might not be too far off the mark once the real deal – deflation – has started to settle in.
September 10th, 2009 at 3:53 pm
Roger – no time to talk now, but you may well have another option by 2011. As we all know, ‘jawboning’ is about as much use as teats on a bull. Watch this space.
Walter – see above, plus will comment more when I get time. Spend on PR needs to be focused well. (What’s with all that ….and ….and stuff? Also, don’t let ‘her indoors’ boss you around with all that floor cleaning. Your’e in NZ now, act like it. Don’t forget the dusting and take the bins out.)
Cheers, Les.
September 10th, 2009 at 3:58 pm
Les : You’ve got my full attention , as a drowning man grasping at straws , we need a viable alternative to Labour and National . And don’t anyone say , ” Winston ” , ‘cos I’ll burst me valves !
September 10th, 2009 at 5:41 pm
The RBNZ has got it’s instructions from the recent Governors of Central Banks meeting in Jackson Hole, USA. The Western countries are planning to co-ordinate their moves to come out of the stimulus and no individual country is going to take an early lead in throttling the supply of cheap money, on which the global recovery is predicated.
New Zealand being a very small economy, there is more risk for it to start withdrawing the stimulus ahead of the big economies. So Bollard is right to play it slow and steady.
The price is in high dollars and uncompetitive export/trade prices. But hey, we have our housing economy to make merry. We will get more offshore funds into the country that way, instead of the more difficult way of manufacturing and exporting.
It is ironic though that cheap money for decades fueled the boom which saw the money flow into unproductive and speculative sectors (read financial derivatives) which set the stage for the bust last year. And now more cheap money is being used to give a boost to the same economies. The only hope is that this time around the use of the money would be regulated/monitored, but don’t hold your breath.
The Bankers are too clever for such controls and will get away with more of such financial shenanigans.
Too big to fail and Too smart to throw out have entered the Capitalistic vocabulary. Difficult to come out of that mindset soon.
September 10th, 2009 at 5:51 pm
Ralph Norris now earns more than the entire cabinet plus Bollard plus head of Treasury put together. He also runs two of the biggest banks in Aussie and NZ. Who has more control over the NZ economy in the vacuum Key, English and Bollard have left. Norris or the abdicating NZ government?
http://news.smh.com.au/breaking-news-business/cba-ceos-pay-up-6-to-921m-20090909-fgo5.html
September 10th, 2009 at 5:59 pm
Roger Thompson
Winston
Winston
Winston
Winston
Are there any valves left?
September 10th, 2009 at 6:24 pm
Urrrrrrrrrrggggggggggghhhhhhhhhhhh gaaaaaaaaaa !
September 10th, 2009 at 11:52 pm
This is the kind of Winston we need:
http://news.bbc.co.uk/1/hi/world/africa/8248056.stm
Although maybe the wings have been clipped too much to fly so high or so fast now?
September 11th, 2009 at 7:16 am
@cbs68
Same here….
Dump risk, protect assets, pay off mortgage, sit and watch. We have had 30 years on constant growth and profits, it cant last for ever, indeed I think the monied ppl (hedge funds etc) have seen that and bailed….The great thing about reading the Great Depression was watching how those with money, could go in and buy competitors, businesses and land at firesale prices, cents on the dollar….then expand as their cost/asset/capital base was low, yes selling into a low market, but so the profit margin was still there…its relative….
If you get out now and it does not go pear shaped you will miss on some profit, yes, so you dont make as much as some that stayed in….but as Hugh Hendry said, if it all goes wrong I will be a giant amongst midgets (paraphrase)….take a look at the list of the the world’s billionaires….its shorter this year….
regards
September 11th, 2009 at 7:35 am
Great fun this live drama. The funniest story from history was how tulip buyers where still arriving in Amsterdam from distant countries long after the tulip mania had crashed. These buyers were annoyed that they had missed out! Hard to believe. Our own version of the tulip stupidity is moving through the same pattern with idiots desperate to dive into a lifetime of debt so they will not miss out on being ‘home owners’. Too bloody thick to realise all they end up ‘owning’ is a lifetime of debt. Sit back and enjoy the free entertainment.
September 11th, 2009 at 7:41 am
Les : Splendid internet pigeon . Recall the hue and outcry from Labour , when John Key announced a Gumnut sponsered roll out of broadband in NZ . It seems that Labour feel that $ 1 billion biffed into Kiwi-Rail is a better utilisation of tax-payers’ monies . No hue and cry over that !
September 11th, 2009 at 8:09 am
@wally, its not home owners, but wannabe landlords, rushing in to make a “killing”…no business acumen, just greed….crazy. Rental of a home is $2k+ a month that gets quite a bit of mortgage, I certainly like to own my home…
@RT: I agree with spending on Kiwirail, a non-fossil fuel transport media, provided we electrify some more, we are going to need it. National broadband I dont understand (and I’m in IT) is just a big fat pipe to the bottom of the road….it makes no sense…no one has as yet come up with a good reason to do it….if that money was spent on a sub-sea cable and we could get unlimited data as a result, that would mean we could use the 10/20Mbit we have now properly, 100Mbit/sec is useless in a data charging environment.
regards
September 11th, 2009 at 8:13 am
@Andy: “Bollard’s failure is not a recent phenomenon.” The problem with raising interest rates is it hits the “real home owner” hard, its missing the target…..its the speculators that need to be removed from the system.
regards
September 11th, 2009 at 9:01 am
Grandy asks:
“Hi raf,
if part 2 of credit crunch is just round the corner… Where did you read those news from?…. It would be good that you could share more with us. Thanks”
raf if you’re still out there quite a few of us would like to get your angle on that. regards neil
September 11th, 2009 at 9:31 am
Fraser Says:
September 10th, 2009 at 1:45 pm
Also the ridiculous comments about how banks lend their money to property purchases rather than businesses – it is entirley their choice who they lend money to – how would you like somebody else telling you what to do with your money if you were a money lender – its none of your business. If you think more money should be lent to businesses, take a home loan from one of these Aussie banks (you keep berating) and then lend your loan to a business – best of luck.
Why doesn’t Kiwibank, who you all love and believe the Kiwibank TV ads undercut the nasty Aussie banks – competition is a great thing – perhaps because Kiwibank likes to make a profit too and keep employing people in NZ.
Firstly Fraser…….. It’s not who they are lending to…….. it’s where, and the long term effect it will have on who..?… they have built the frankenstien they cannot kill “it must live “…”.live I tell you !”….(followed with a maniacal laugh)
Secondly………..The Aussie Banks are just a convenient and conspicuious face that we can prod…berate…blame.
We know the poor little buggers are not acting alone in thier strategy it’s just that it’s so hard to spell….. deutsche bank
Thirdly….(is that a word).. We don’t love Kiwi Bank……. we would love a realistic alternative… that’s all.
Oh and as to your blanket statement on home and rental ownership in N.Z………That was just rubbish and simply untrue .
Harriet Says:
September 10th, 2009 at 2:24 pm
AND @ Fraser:
“… NZ – do you realise more people rent here than own their own property. Other countries throughout the world, it’s virtually a crime to rent and not own!”
No I didn’t know that, and in fact I’d have to do some more checking but I did find that:
“in 2006, 68 per cent of New Zealand homes were owner-occupied.” Mary Holmes.
http://www.guide2.co.nz/money/questions/investing/does-nz-invest-more-in-investment-property-than-other-markets/6/10091
So I’d have to be skeptical about your comment.
Spot on Harriet…. Fraser must have been sitting when he wrote that.