Reserve Bank Governor Adrian Orr puts in a plug for the Government and businesses to invest more to take advantage of low global interest rates

Reserve Bank Governor Adrian Orr puts in a plug for the Government and businesses to invest more to take advantage of low global interest rates
All tied up: Adrian Orr says the NZ waka is tied off to the global ‘risk free’ interest rate wharf. When the global rate declines, we need more rope - or face a rising exchange rate and tighter financial conditions than needed.

Reserve Bank Governor Adrian Orr is urging greater Government and business investment to take advantage of low interest rates.

In comments released by the RBNZ following Orr's visit to the big and prestigious central bank governors talkfest at Jackson Hole in the US, Orr says he understands that lower interest rates do not remove the global political uncertainty.

"But they do offer greater certainty on the financial and investment front. Businesses and governments should be re-assessing their hurdle rates on their investment projects. Low and stable global interest rates mean that what was once costly may now be a sound investment for the future.

"The Reserve Bank is among the global central banking crowd - we are not alone. But we need other actors to assist and understand."

The not-alone theme is central to Orr's comments.

"The annual August Kansas Federal Reserve’s summit of many of the world’s central bankers [in Jackson Hole] vividly highlighted our commonality. Inflation has been low and stable, and many labour markets are near their peak loading. New Zealand included. Independent central banks have successfully achieved their inflation goals, promoting economic wellbeing.

"...Our recent OCR cut reflected an expected decline in trading partner growth, lower NZ inflation expectations, and a global swing to lower interest rates. It also reflected the ongoing funk global and domestic business confidence is in. Geopolitical uncertainty is paralysing decision making in major business centres - trade tensions, Brexit, Hong Kong, North Korea and so on - have all meant investment is lower than normal.

"The NZ waka is tied off to the global ‘risk free’ interest rate wharf. When the global rate declines, we need more rope - or face a rising exchange rate and tighter financial conditions than needed."

Continuing on a similar theme, he said the bank was "not alone in the Aotearoa waka".

"Other economic levers need to be utilised effectively to enhance social cohesion and wellbeing. The Banks’ regulatory activity includes promoting financial stability. We have our prudential tools set to ensure our financial instructions are robust financially and culturally. This is our best lever into financial soundness and inclusion."

Orr said it was the job of central banks to aim to keep inflation low and stable and contribute to maximum sustainable employment.

"This is the best we can do as a central bank to promote economic wellbeing. We have the one main instrument - the interest rate lever or price of money - and we use this tool with our best view of what’s on the horizon. We provide forward guidance on our expected activity, but remain flexible to incoming data.

"Monetary policy remains as effective as ever, and for small open economies like New Zealand, the exchange rate plays a significant additional role in competitiveness. Our research gives us confidence that even at these low levels of interest rates, monetary policy remains as effective as ever at providing timely economic stimulus.

"As the Governor of the Swedish central bank noted - those who think that monetary policy is losing its vigour should think of the alternative. Higher interest rates over recent times would have meant we undershot our inflation and employment goals, have significant weaker activity, and a rising domestic exchange rate - until it was unsustainable.

"But there are natural limitations to what central banks can achieve with their tools, and if operating alone."

Orr said "a key concern" amongst my international colleagues is that central banks are being tasked with more and more challenges - and public expectations continue to rise also.

"The discussion was clear. Monetary policy (the domain of central banks) has its limitations and needs to be partnered with broader fiscal and structural economic policy (the domain of the government of the day). Likewise, business people need to consider a much longer-term horizon when investing, looking through the omnipresent political uncertainties de jour."

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who are they kidding. NO business will invest in the current climate

When even the government can't be bothered to get out of the current savings mode and spend more on projects that'll expand economic capacity and ensure long-term prosperity, how can they expect businesses and households to do so.
The ruling party is more inclined towards less urgent, sensationalist causes and the cross-bench continues to put their weight behind short-sighted economic stimuli.


Well, only those paid to waste shareholder wealth, anyway.

People with their own money at risk need to be confident that opportunity is real. Mr Orr's Groupthink works in theory, but in practise encourages the lowest productivity business to keep people employed, which is a good thing in the short term. Over time, however, it leads to widespread over production and collapsing prices and profitability. Which destroys our home grown capital base, forcing our business owners to sell their assets to foreign capital in order to clear their debts. It is a nonsense business model. Nonsense in, nonsense out.

Yeah...not sure why central banks seem to suggest supporting more zombie companies via monetary policy is a great way to a prosperous future.


... so long as Julie Anne Genter is high priestess of what we're permitted to do or not , business will remain depressed and confused ...

The manner in which this government shut down the offshore natural gas exploration was a shot which is still reverberating in industry's ears

Suicide by decree, it seems.


... kiwi cows can continue to poop up our fresh waterways , but Canadians cannot drill holes for gas a zillion kilometers offshore in the deep ocean....

Help me ... I'm lost with Labours logic there..

..the biggest illogic is that we are the problem, yet immigration and breeding policy is for more weeeees.

You think cow poop in waterways is bad. (which it is).

Despite Canada's clean green image they are home to one of the worst industrial processes on earth.

Have you heard to the Canadian tar sands in Alberta? Which one of the most destructive industrial processes human history. Were they extract heavy crude oil from sand and clay. Which ommits over 3,600 tonnes of CO2 emissions per hectare.

The unlined tailing ponds where the toxic sludge of waste products goes leaches into the ground. Covering 220 sqkm and holds 1 trillion litres of sludge that is some of the worst industrial byproduct in the world. That will remain in molasses-like suspension for centuries if left alone. Its gotten into wateways and has ruined food sources.

After seeing the impact of that on the environment & waterways the cow poop water will look like the finest spring water.

This is the narrative they should have been yelling from the rooftops after the GFC but no, instead we got the borrow as much has you can to buy a house narrative which in turn pushed up the price of the non productive housing sector until it has become all consuming for First time buyers and those wishing to upgrade. So now we have a high mortgage debt/credit card debt society which means there is less cash available for household discretionary spending - could this be why the retail sector is finding it tough going? Also read the other day that we Aucklanders are spending much less on home renovations too.

Yes we do need businesses to spend, they provide the jobs for the people who have these large mortgages but realistically will they? Most banks will look to take security over property which in the current market here in Auckland is looking uncertain as to any short term increases in Prices so valuations would likely be on the cautious side. Add into that equation the global debt bomb, dodgy derivatives - Deutsche Bank is still on extremely dodgy ground plus the political situations in China USA Italy Germany and the UK to name a few and you don’t have an environment that going to encourage many businesses to take on more debt. So once again it’s a case of the people taking on more and more debt whether that be for personal or business use. I think our Bank Governor can see there is a problem on the not too distant horizon but really, is more debt the answer?

Oh god I can hear Bernard Hickey already...

... we do miss the Hickeysterical Bernard around here ... lots of fun winding up Big Bernie !

The ultimate DGM!!!


There is no positive outcome generally to further investment by NZ era until the Foreign Investors reduce the $20 Billion profit per annum being removed offshore.

This is an effective Foreign landlord rent on all NZ era.

Every win we make ends up in the Foreign owned profits as they have their hooks in most of our supply chain.

Their super profit in 1 year is equivalent to 40 years of our largest exporter Fonterra earnings.

A scale of cost to NZ business that makes interest rate control insignificant.

I've been repeatedly assured in the comments section on that it makes no difference who owns NZ's productive assets and infrastructure. Surely it can't be wrong.

If FDI is over funded by debt, thus no tax liability and the exported debt servicing proceeds are greater than what they offer, then we are fools.


"not alone in the Aotearoa waka".
From where I'm sitting mate, the waka is taking water fast, the Orr is paddling flat out and no one prepared to jump into a boat that is beyond repair.
Meanwhile the captain isn't on deck much. The second in command is bitching about flowers and the third equal in command are taking flack from their own members if they are left or right and if they should encourage better recycling or ban cars in favour of horses, (or something equally as left field which dosen't really matter that much at present) that only uni students pay any attention to.
The rest of the country is either paying off their debt as fast as possible or looking for the best life vest they can find, which are in short supply.
The mainstream media is the band on the Titanic and keep playing up beat melodies.
The sharks roll out their PR economists saying the waka is all good, jump in so we have more to feed on when it finally goes down.
Looking out to sea the black clouds are gathering and every other day another large swell rolls in.

"Monetary policy remains as effective as ever, and for small open economies like New Zealand, the exchange rate plays a significant additional role in competitiveness. Our research gives us confidence that even at these low levels of interest rates, monetary policy remains as effective as ever at providing timely economic stimulus.

The reason the bond market isn’t pricing in a resulting burst of inflation is because the banks buying the balance sheet tools in the bond market (and maybe gold, too) know from experience and practice central banks are incapable of creating inflation. That much has been fully established by the last twelve years. The fact that central bankers don’t know it yet further strengthens the case; they’ll try and simply repeat the same failures even if they go full BoJ QQE shock and awe. Link

“Our research gives us confidence that even at these low levels of interest rates, monetary policy remains as effective as ever at providing timely economic stimulus.“
I’d love to know what they determine as stimulus. If it’s investment in unproductive assets then they are on the money.

"But there are natural limitations to what central banks can achieve with their tools, and if operating alone."

Quantitative Easing and the Quantity Theory of Credit

The QTC suggests that neither interest rate reductions nor fiscal expansion, nor reserve expansion, nor structural reforms would be able to stimulate nominal GDP growth. Based on this model I proposed in 1994 and 1995 that a new type of monetary policy be implemented in Japan, which aimed not at lowering the price of money, or expanding monetary aggregates, but at the expansion of credit creation for GDP transactions.4 Since the expression ‘credit creation’ was considered difficult to understand in Japanese, I prefaced the standard Japanese expression for monetary stimulation (‘monetary easing’ or ‘easing’) with the word ‘quantitative’ to declare that ‘Quantitative Easing’, defined as credit creation for GDP transactions, would create a recovery (Werner, 1995). ‘Quantitative easing’, or, in long, ‘quantitative monetary easing’ are literal translations of the Japanese expressions 量的緩和 (ryōteki kanwa) or 量的金融緩和 (ryōteki kinyū kanwa), kanwa, respectively. These expressions had until then not been used to refer to the money supply, bank reserves or deposit aggregates. I suggested in numerous publications that the central bank purchase non-performing assets from the banks to clean up their balance sheets, that the successful system of ‘guidance’ of bank credit should be re-introduced, that capital adequacy rules should be loosened not tightened, and that the government could kick-start bank credit creation and thus trigger a rapid recovery by stopping the issuance of bonds and instead entering into loan contracts with the commercial banks (e.g. Werner, 1998).

Is this an admission of defeat???

The ducks feet have been on hype drive below the surface to stay afloat. The duck called a 50 base point drop to lighten the load, which didn't amount to anything. Now it is sounding out again that it needs help.
Reading between the lines of what he just said... the duck is struggling even more and needs help fast. What everyone hears is, the duck is going down get your own house in order.

They'll just spend it on crap anyway.

It seems that the NZ mentality is to borrow money and invest in property rather than business. A large part of the Mr Orr's interest rate reductions will result in a continued push for NZ property to increase prices. Not sure as to how much help it is doing business though, unless you are an exporter. I'm amazed that the millennials are not up in arms about the ever lowering interest rates. Maybe they want home prices to continue to increase instead of decrease???

It is a bit of a farmers common type problem. In the short term, lower interest rates allow more people to be able to borrow enough to purchase property. In the long term, the property values just increase until the values reach the next level of unaffordability. In global terms, it is a beggar thy neighbor approach, with every country racing to the bottom so as to have the cheapest currency.

If I were king for a day, I would implement an across the table CGT for homes and investment instruments, and roll back the interest rate cuts.

"The Reserve Bank is among the global central banking crowd - we are not alone"
So when the ship goes down, sorry - waka, we'll be drowned along with everyone else?
How consoling!
We should be 'alone' and doing things differently; in a way that is tailored to help New Zealand survive ( and dare I say it, thrive) when the fleet hits the rocks.
But it looks like, no.
Ah, well. It's every Kiwi to themselves then I guess.....Good Luck, all, because mortgage rates at 'zero' aren't going to save many of us...

Correct, and like all historical experiments with socialism (which central banks are effectively driving us towards by destroying savers and rewarding non productive speculation and the parasites), it will end up being every man for himself. Those who have seen socialist societies implode will understand this. Oh, the irony of the so-called system of “equality”.

Invest in What? Self sufficiency Kits?

Watch out for the next "unexpected" crash, Tourism! Bookings are good for the 2020 summer season at the moment, but read the small print, No fees for cancellation before a week of booking. Don't count your chickens until they are hatched.

At the risk of repeating myself, it is the lack of prospect for profitable businesses to invest in that results in such a huge flow of money into real estate. Look around in NZ, every trade, every business with even slightest room for profit is crowded to death. Hospitality? car mechanics? retail shops? air lines? dairy farming? wine making? lawyers? accountants? IT?construction? other forms of Agri? all saturated to their death. The most promising types are very high risk start ups that no average person will ever invest in. House prices are symptom of this problem not its cause.

I agree 100% and yet strangely these businesses charge the consumer or customer,top dollar.Its as though there is no competition.

By all means Adrian, just persuade banks to lend to businesses instead of property spruikers. Ill find peoductive use for the funds if you chuck us a cheap load without houses being involved.

... I get that .. We have how much debt over highly inflated house prices , $ 165 billion or so ...

Imagine a fraction of that going into roads , tunnels , bridges , electricity grid upgrades , recycle plants , waste treatment plants.... Wow ! ... nearly wet meself at the thought of greatly improving our lives , the environment , more jobs ...

.. instead of just using that money to further pump up the housing bubble...

It's one reason why increasing land tax and decreasing income tax is useful. It reduces the heights prices can go to and instead of all the interest being siphoned off overseas part of that same cost that would otherwise be interest actually goes into contributing to the country and its infrastructure.

a few bill out on the housing debt

What we need is higher wages

Mousey coalition no chance of borrowing more

I believe central bankers simply don't know what they are talking about - and that there is a mountain of evidence building for that case. Especially where bond mkt, curves, and most of all negative rates and gold are concerned. Link

'RBNZ - we are not alone'
Yes, we are together with many other similarly oriented countries in the race to the bottom. We don't have a big economy to arrest the speed of decline, if it hits us, instigated by some unfortunate event/development elsewhere.

Housing and stocks are already in a bubble. Boomers don't want to invest in risky new businesses when they can milk and easy rental income stream and immigration shows no signs of slowing. The rest of the population is trying to save an exorbitant deposit to maybe afford a house or they are paying down exorbitant levels of household debt.

Regarding the old adage that inflation is so bad... ever met anyone that hasn't bought a TV yet because they've been coming down in price? If anything they've bought a bigger one. Given all the possible reasons for inflation - supply and demand side not to mention supply of money, is it even relevant as a target anymore? Central banks seem to be blowing bubbles left right and centre while chasing elusive inflation. The inflation is right there in front of them in our share market and housing market.

The government should not hesitate now to use cheap money for big projects eg developing the Auckland waterfront, extending the Harbour bridge and fast track train connection to the air port. Time to start importing boatloads of labor. Surprising other countries can manage to complete hugh projects in a short space of time and here we are struggling. Also the government should go joint ventures with businesses and RDA that will return revenue for the government. It will be a win win for all.

Something else to think about.... after the last GFC most counties just bailed out their banks and said naughty naughty don’t do that t again to the bankers. Iceland went much further and didn’t bail out it’s banks and sent it’s naughty banker to jail.

Iceland now look as though they are in a much stronger position to weather the next GFC.

Found this article about their experiences the other day

I thought Orr would be a breath of fresh air,but is turning into a major disappointment. If our $ keeps falling,then there is a risk that Trump will declare us to be a currency manipulator and slap tariffs on us.

He might wish to look at Denmark where after 7 years of negative interest rates,some of their smaller banks are starting to charge retail customers for their deposits. Why are the Danes not investing all this cash in their economy?

is there anyway the government can force Orr to show his hand ?