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RBNZ’s Bollard says NZ must live within its means
November 11th, 2009Reserve Bank Governor Alan Bollard has again warned that New Zealanders need to live within their means to reduce the risk that a loss of confidence by foreign lenders would damage the economy.
Bollard said in releasing the RBNZ’s 6 monthly financial stability report that the improved global outlook was generally positive for New Zealand, but the rise in the New Zealand dollar since March was unsustainable and could hurt an improvement in New Zealand’s current account deficit.
“The New Zealand economy needs to live more within its means to reduce the vulnerability to adverse developments in offshore markets,” Bollard said. “While we see some progress to recover savings and reduce our current account deficit, there is still a considerable adjustment needed to reduce our vulnerability to external shocks,” he said.
“To assist this we need to ensure there is no return to a debt-fuelled housing cycle, which would likely bring with it further exchange rate pressure and erosion of competitiveness.”
Bollard also warned banks not to lend too aggressively to home buyers and noted some softening of credit standards and offers for higher loan to value mortgages.
Tags: Reserve Bank of New Zealand
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November 11th, 2009 at 9:32 am
“While we see some progress to recover savings and reduce our current account deficit….”
Is this actually happening??
November 11th, 2009 at 9:47 am
Warnings dont mean anything to anybody. Humans will take as much as they can greedily get away with until they physically can not take anymore. A hard lined approach is the only thing that can save NZ.
November 11th, 2009 at 9:58 am
You only have to frequent the propertytalk forums to realise the average home buyer has the mentality of a school boy who wants there houses to go up in value at any cost so they can be rich. There understanding of the wider economy is very poor, in general…
They think because MP’s and other powerful people have a lot of property then they will make sure property keeps going up.
If alan bolard projects his own intelligence onto the average NZ’er then we are in deep trouble, as most NZ’s have no idea what a current account deficit is, and will borrow as much as they can to get as much property as possible becasue everyone knows property ‘doubles evey 7 years’
November 11th, 2009 at 9:59 am
Bollard should go in for stand up comedy. When’s the next Edinburgh fringe? Maybe we could pass around the hat and send him on his way to merry Scotland. Oh sorry I forgot – no need for a whip around, we are already paying him half a million smackers to come out with these gems.
November 11th, 2009 at 10:12 am
“…we need to ensure there is no return to a debt-fuelled housing cycle, which would likely bring with it further exchange rate pressure and erosion of competitiveness.”
What’s that sound?
Hands wringing perhaps.
Still, there’s always the trusty OCR.
November 11th, 2009 at 10:12 am
“To assist this we need to ensure there is no return to a debt-fuelled housing cycle, which would likely bring with it further exchange rate pressure and erosion of competitiveness.”
Clearly the half million we pay this guy means he can afford to buy his house for cash !!!
If he doesn’t understand that the only way to buy a house these days is with debt, then he has no clue about something that has around 30% impact on the economy.
If some smart cookie can come up with a way for people to buy affordable houses without debt i am sure the banks would have them assissinated in pretty short order.
November 11th, 2009 at 10:14 am
I agree with you Liam. Humans require some control. Laws and regulations. However, most are concerned that if you tamper with the ‘free’ market, it might come and bit you in the bum. The world is about some freedoms and some regulations, or people just rort a system. Look at how many sectors have required regulation. Yet, some are not (and should be). Things are way out of wack and need some attention or you may find yourself with a large gap between the rich vs poor. Landowners and renters. C’mon, no guts, no glory. Lets get NZ moving again. I’m growing tired of hearing warnings.
The longer house prices are this high, the greater the debt we’ll have, and the bigger grip the 4 pillars will have around NZ.
November 11th, 2009 at 10:23 am
Hone Harawira for Reserve Bank Governor – the Government and the banks need a shock jock in charge.
November 11th, 2009 at 10:42 am
Kate……….. a racist for a Reserve Bank Governor? Mind you I guess it would make a change but I could not imagine what it would do to all those white Mofo bankers and other people raping our economy….what….who is raping our economy?
November 11th, 2009 at 10:56 am
I think what Bollard is forgetting is that half or New Zealand can almost be classed as the working poor – people with low paying jobs who toil ernestly but still struggle to make ends meet.
I’m not suggesting a state driven redistribution of wealth, but our Gini Coefficient is way out of whack and the middle class are unable to get ahead. A prosperous middle class drives economies forward, and until things are done to improve their lot I can’t see us moving forward.
Unfortunately, while so many of our MP’s have laqc’s and other cunning structures we’ll stay in this hole.
November 11th, 2009 at 11:03 am
That’s the myth Greg…that there is a middle class…my guess is Noddyland has a huge % of worker bees dependent on WFF honey taken from other worker bees while queenbee plays with her lords in the beehive. Now buzz off and get your days taxes paid.
November 11th, 2009 at 11:07 am
Paul, yes, exactly!
November 11th, 2009 at 11:08 am
“Reserve Bank Governor Alan Bollard has again warned that New Zealanders need to live within their means to reduce the risk that a loss of confidence by foreign lenders would damage the economy…”
Why worry about the loss of confidence by foreign lenders? Why do we have to keep borrowing from foreign lenders? Would a consumer or a home buyer worried about foreign lenders? Would man in the street concerned about foreign lenders?
Are foreign lenders holding back lending to NZ already??? anyone knows???
Perhaps, we could start printing money instead of borrowing from foreign lenders, right?
November 11th, 2009 at 11:12 am
That said, if Harawira & Co were raping our economy, at least they wouldn’t rape it then absquatulate to a chilly tax haven like fay, richwhite, watson etc. They’d just go and fritter their millions into Northland’s cash economy. Not such a bad option now….
November 11th, 2009 at 11:14 am
What does that comment really say?
Reserve Bank Governor Alan Bollard has again warned that New Zealanders need to live within their means to reduce the risk that…
..a loss of confidence by – foreign lenders – would damage the economy.
I just shake my head in disbelieve.
November 11th, 2009 at 11:16 am
Hone would make a great RB Gov –
* free land to all Maori (just like it was 200 years ago) – this would reduce total debt to overseas parties. State would pay the registered value (via our taxes) or asking price to the current home owner and title transfered. Just like the State taking land for motorways. This would be one way to give land back to the Maori. Currently we have huge treaty settlements – but how much gets back to the average once were warrior family’s ?
Another option would be for the State to bypass the banking system and lend to taxpayers directly at the OCR rate- make it only apply to the family home though.
November 11th, 2009 at 11:17 am
Ha – ha it gets even better !
Perhaps, we could start printing money instead of borrowing from foreign lenders, right?
–crazy !!!!
November 11th, 2009 at 11:30 am
Liam Says:
“Warnings dont mean anything to anybody. Humans will take as much as they can greedily get away with until they physically can not take anymore. A hard lined approach is the only thing that can save NZ”.
Cullen and Co repeated warnings for yrs…basically ever since the extra tools the RB had for decades where removed in the early 90s…in the name of the “free market”
And that fell on deaf ears also…
And that is what lead to the current Financial crisis and unprecedented housing boom.
Get a Grip JK, give back the RB the tools to prevent such extreme booms and busts happening again…
November 11th, 2009 at 11:32 am
But I’m not repeating myself with another article, Here the links:
http://www.interest.co.nz/ratesblog/index.php/2009/08/19/2025-productivity-taskforce-includes-former-labour-finance-minister-caygill/#comment-33727
http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-why-new-zealand-needs-to-follow-singapores-example/#comment-43219
November 11th, 2009 at 11:37 am
Perhaps Dr. Bollard should have a word with Key and English about living within their/our means. With their big spendup why should we tow the savings line.
November 11th, 2009 at 12:19 pm
To all,
Just reporting now from Bollard’s current appearance before Parliament’s Finance and Expenditure (FEC) Select Committee:
RBNZ’s Bollard tells FEC he may use OCR and prudential policy to avoid housing bubble
He says banks know this and will control their lending. He doesn’t see a major problem yet.
cheers
Bernard
November 11th, 2009 at 12:21 pm
RBNZ’s Bollard says difficult for current account deficit to improve while NZ dollar is so ‘disappointingly strong’
November 11th, 2009 at 12:27 pm
RBNZ’s Bollard says wouldn’t hesitate to use prudential rules to lean against growth in housing bubble if necessary
November 11th, 2009 at 12:28 pm
RBNZ’s Bollard says favours changes in tax regime to discourage growth of housing bubble
November 11th, 2009 at 12:29 pm
RBNZ’s Bollard says NZ house prices look ‘quite high’ compared to income and other markets
November 11th, 2009 at 12:32 pm
RBNZ’s Bollard says IMF sees a ’square root’ shaped recovery in global economy. ‘Down, up and then flat’
November 11th, 2009 at 12:35 pm
RBNZ’s Spencer says bank profit margins for shorter term mortgages have come back into line with historic norms
November 11th, 2009 at 12:37 pm
RBNZ’s Bollard ‘core funding ratio’ could be useful as an automatic stabiliser for housing market ‘if we get it right’
November 11th, 2009 at 12:39 pm
Bernard – please pass my regards to Dr. B and tell him he has my full support:
http://www.interest.co.nz/ratesblog/index.php/2009/11/06/opinion-how-neoliberalism-has-failed-new-zealand/#comment-45783
“….that the simplest way to achieve this, as part of the next incremental step in the correct direction, is by putting more emphasis on and formally varying liquidity ratios as a complement to the OCR. Imagine the MPS statements then,
“Given the surge of growth brought about by the successful implementation of the recent tax reforms inflationary prospects now warrant further tightening of monetary conditions. We will at this time leave the OCR at 1%, but will initially increase liquidity ratios by x%. Have a nice day.”
http://www.interest.co.nz/ratesblog/index.php/2009/11/04/opinion-rbnz-needs-effective-tools-to-control-non-tradeable-inflation-and-volume-of-credit/#comment-45445
“So in the context of the debate associated with this article, my preference is extend, improve, develop utilise something that we now seem to have (back?) in place and is working, to throttle inflation and debt, that is, increasing the reserve ratio. It’s not perfect, hence my various questions about loop-holes etc. (Thanks to both you and Rob for your help.) Plus we should remember, RBNZ using it to control inflation has not been their primary concern, the effect they are getting is collateral it seems and good for the nation, it must be, look who’s complaining….”
And I’m looking forward to meeting him again on 29th January at Mancan – and I promise not to wax on about ‘interest linked savings schemes, other variants and all that – IF he is ACTUALLY getting ADEQUATE traction utilising liquidity ratios more effectively. Here’s hoping….
November 11th, 2009 at 12:41 pm
RBNZ’s Bollard says Tobin Tax impractical from a NZ point of view
November 11th, 2009 at 12:41 pm
RBNZ’s Spencer says any quantitative easing in NZ may cut NZ$, but would have unfavourable impacts elsewhere
November 11th, 2009 at 12:43 pm
RBNZ’s Bollard there’s more pressure in non-bank sector (finance companies) and sees more casualties out of that
November 11th, 2009 at 12:45 pm
Bernard – re. Tobin Tax, ask him if it’s because it eat into RBNZ’s trading margins and their bonuses? Re. tell em’ they had some decent and responsive inflation control tools in place, QE would be less of a scarey thought.
November 11th, 2009 at 12:47 pm
Bernard
When would there be some kind of effective policy implementation from RBNZ that could address the rising house prices and the strength of the Kiwi dollar and would not have unfavourable impacts elsewhere? It seems like as tough as striking Lotto.
November 11th, 2009 at 12:48 pm
Bernard – re. dodgy fin.co’s failing, tell him we ain’t blind and stupid, tell us something we don’t know. Ask him how it managed to get as bad as it has in the first place?
November 11th, 2009 at 12:49 pm
RBNZ’s Spencer says use of core funding ratio could work as automatic stabiliser and reduce need for big OCR moves
November 11th, 2009 at 12:50 pm
RBNZ’s Bollard says banks haven’t welcomed core funding ratio moves, but realise now other regulators globally are doing similar
November 11th, 2009 at 12:52 pm
Bernard – re Spencer and core funding ratio as stabiliser and reducing need for big OCR moves, tell him we ain’t stupid and worked that out, but where will it bring the dollar down to? (Perhaps they better take puts?)
November 11th, 2009 at 12:53 pm
“Meanwhile, the Bank confirmed a start date of April 1, 2010, for the new prudential liquidity policy that should reduce banks’ over-reliance in the past on short term wholesale funding. The policy was to have come in before the end of this year.
Banks would initially be required to hold minimum core funding ratio set initially at 65 percent, moving in two stages to as high as 75 percent on a timetable yet to be determined, but which should be complete by mid-2012, the RBNZ says”…..in other words somebody has been able to delay the ‘prudential improvement policy’…now I wonder whom!!!! Interesting when you read the fine print isn’t it… my bet is the April 1 date will be move out again and the 65% /75% targets will be cut back while the 2012 start date will become 2015……
November 11th, 2009 at 12:56 pm
RBNZ’s Bollard keen to use core funding ratio to complement OCR as monetary policy, but doesn’t want to over-promise (and undeliver)
November 11th, 2009 at 12:57 pm
Wally – argghh, and other “regulators are doing similar” – maybe a strangle then? Or maybe sidelines?
Maybe something more direct to stabilise NZD and bring it down?
November 11th, 2009 at 1:00 pm
I don’t think Bernard has the right to speak (or ask questions). It is a select committee hearing.
November 11th, 2009 at 1:00 pm
“over-promise (and under-deliver)” Sides splitting, stop it. Plus it looks like your’e having as much trouble with this editor as the rest of us…
November 11th, 2009 at 1:01 pm
Bernard,
Did RBNZ discuss anything about CGT and/or Land Tax ?
November 11th, 2009 at 1:03 pm
Sam_M – thanks for for helping adjust my expectations, I’ll just have to ask myself on 29th Jan at Mancan in Christchurch. Looking forward to it.
November 11th, 2009 at 1:07 pm
Les…it’s a lost cause mate. The economy is being touted as a silk purse with a future when it’s really a complete bloody disaster hiding behind a property bubble propped up by cheap credit and stupidity, egged on by the RBNZ and the Cabinet of fools. Look after yourself Les. Time to shift to the bomb shelter.
November 11th, 2009 at 1:10 pm
Sam_M…he could shoot peas at them! Select Committee of Muppets.
November 11th, 2009 at 1:15 pm
Here is the news…Noddyland faces shocking export returns due to foreign exchange gamblers playing “bugger the Kiwi” but if the RBNZ has its way the Kiwi will crash some future day…and then we all will have to pay…a dam sight more for our tank full of hay.
I spose you could make fuel from hay…no matter..it went with pay.
November 11th, 2009 at 1:19 pm
Bernhard,
Surrounded by academics, certainly a more practical approach will help rather then hearing the same drum again and again:
http://www.interest.co.nz/ratesblog/index.php/2009/10/15/bernard-hickey-talks-on-tv1s-breakfast-about-the-awful-budget-situation/#comment-41932
Walter
November 11th, 2009 at 1:21 pm
I don’t think he wants the aitch Walter!
November 11th, 2009 at 1:22 pm
Wally – ha, ha, thanks for the advice, you may well be right. However, functionally we could fix the problems – IF there is sufficient WILL. Sure, we know that ain’t there in the present gov., just as it wasn’t in the last one. My first scan read on the just released banking inquiry left me feeling as encouraged, as discouraged – too many recommendations for further work instead of actions and what I was hoping for, the foundations of a clear action focused mandate for change – some of the solutions are balls on a dog obvious and yet… Anyway it’s early days, maybe we can make a silk purse out of what the Labs, Progs and Greens have started. Here’s hoping, because there is always hope – especially if a few more will stand up and be counted and get behind a momentum for change. Cheers, Les.
November 11th, 2009 at 1:30 pm
Oh what grand sentiment Les…I’m sending your name in for a knighthood…but the truth is we are stuck in the engine room of the Titanic and the Captain has yelled down the tube, not to worry it’s just a dribble of seawater.
November 11th, 2009 at 2:11 pm
Life is a triumph of hope over experience.
October 2007 pre crisis Monetary Policy Enquire – kick for tough do nothing, an election another year of doing nothing of messing around the edges, a crisis another year of defending the status quo – in another year start worrying about an election in another year ….. hope is all we have.
November 11th, 2009 at 2:16 pm
Spencer says QE might have unintended consequences? Worse than an overvalued currency?
Bollard would not hesitate????
November 11th, 2009 at 9:16 pm
Live within our means, everytime Bill English opens his mouth the numbers get bigger, this from his speech at Taranaki Chamber of Commerce yesterday:
“As a consequence the Government was currently borrowing an average of $250 million a week just to keep up, Mr English said. And this was expected to continue for the next four years.
“So we’re building public debt. It is currently at $35 billion, and we expect it to head to $70-80 billion before it starts coming down again.
“That explains why the Government is having to be very tight with its spending right now. Every dollar we let run away here, will help put our public debt up there.”
http://www.stuff.co.nz/taranaki-daily-news/news/3050330/NZ-needs-Taranaki-to-thrive-English
November 11th, 2009 at 9:27 pm
Bernard I waited an age to ask John Key a question re Govt Bonds when he was on Radiolive the other day, but I got passed over, maybe next time I will just tell them I want tell him how much I love him and I might get through the screening process, but I was kind of hoping next time you get one of your frequent opportunities you might ask John or Bill given that we are going to issue $55 billion govt bonds and start a local govt bond bank to issue a further $30 billion, could they please tell the people of NZ exactly what a govt bond is? what role they play in our economy? who has the right to monetise them before they do or dont sell them onto the secondary bond market? what do they use to monetise govt bonds? and if any of his answers involves the US Federal Reserve, please ask him what his role there was when he provided his services there 1999-2001
November 11th, 2009 at 9:27 pm
@Iain, amazing eh. And yet us tax-payers can still afford to subsidise MPs and their partners to the tune of 90% on airfares. What a great bunch of leaders, NOT.
C’mon NZ wake TFU!!
Watch the film, ‘The Matrix’ – red pill or blue pill? Surely you can see enough to make a choice – even if it’s continued debt subjugation, for you, your kids and grand-kids. At least get your f^&^in eyes open.
Then ask, how else are they and their supporters rorting the rest of us?
Final question, how much and what type of Helen’s electoral opiums did you swallow – was it enough for your kids and grand-kids – are you sure?