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Businesses urge the RBNZ not to remove the punch bowl that is low interest rates; Economists recognise the party will have to start winding down mid-next year

Businesses urge the RBNZ not to remove the punch bowl that is low interest rates; Economists recognise the party will have to start winding down mid-next year

Businesses don’t want the Reserve Bank (RBNZ) to remove the punchbowl that is loose monetary policy.

But economists know the central bank will need to start thinking about when and how to wind the party down.

Since the onset of COVID-19, the RBNZ has sought to boost inflation and employment by lowering the Official Cash Rate (OCR) to 0.25%, buying $53 billion of mostly New Zealand Government Bonds, and lending retail banks $3 billion via its Funding for Lending Programme (FLP).

It will continue to buy government bonds and make cheap funding available to banks until June next year.

RBNZ will walk a tight rope

But with inflationary pressures building and the labour market proving tighter than expected, all eyes are on how the RBNZ will use its quarterly Monetary Policy Statement due out on Wednesday to signal an eventual tightening of conditions/raising of interest rates.  

“The big test for the RBNZ is, how does it acknowledge the evolution we are witnessing without scaring markets?" BNZ head of research Stephen Toplis said.

“We completely understand why the RBNZ would not want rates to rise yet, nor the NZ dollar for that matter.

“But, at the same time, the Bank’s credibility would be threatened if it didn’t acknowledge price pressures have risen. Somehow it needs to find a way to prevent a market over-reaction while still signalling that the possibility of tighter conditions has increased.

“We will watch this tightrope walking with interest.”

Commenting as New Zealand Institute of Economic Research (NZIER) Shadow Board members, representatives from the business community said they wanted monetary conditions to remain loose.  

Businesses want more support

BusinessNZ CEO Kirk Hope said: “Despite ongoing improvements in business and consumer confidence, and some key economic statistics proving better than expected - EG employment growth and reductions in unemployment - growth in the economy will still be constrained until the borders are opened up.

“While inflationary pressures - particularly as a result of continuing supply-side constraints - are on the rise, there is little justification for changing monetary policy settings, at least in the short term. 

“Continued uncertainty surrounding the vaccine roll-out and a number of legislative proposals by government, particularly in the housing, labour market, and environmental space, could have a chilling effect on investment as uncertainty rises.”

Similarly, MYOB head of customer service, Jo Tozer, said: “[T]he profitability of local small businesses is still finely balanced, with around a third of SMEs [small to medium-sized enterprises] seeing an increase in profitability in the last three months, and the same proportion seeing profitability fall.

“In this environment where there are still strong levels of uncertainty, SMEs would not welcome a tightening of the current monetary policy.

“SME owners and decision makers rank inflation as low on their list of concerns impacting confidence for the year ahead.

“This would signal that they are broadly happy with the RBNZ’s currently policy, and bearing in mind that the sector is still cautious about New Zealand’s economic performance - around half expect the economy to decline this year - it’s likely they’d prefer not to see significant change at this stage in New Zealand’s post COVID-19 recovery.”

Grimes wants the RBNZ to stop bond-buying/QE

While most bank economists foresee a gradual tightening from after June-2022, Motu Research senior fellow, Victoria University of Wellington professor and former RBNZ chairman, Arthur Grimes, told the NZIER the RBNZ should act with some urgency.

“Asset price inflation (particularly of houses) that is driven almost solely by monetary policy, is causing massive social dislocation,” he said.

“In addition, goods price inflation looks to be on the rise. The degree of monetary easing needs to be lessened, initially through stopping bond purchases.

“Unless an unexpected downward shock were to occur, monetary policy needs to be tightened. It is already well behind the curve and will become more so the longer a tightening is delayed.”

Bank economists expect movement next year

However, Toplis noted the RBNZ is already buying bonds at a slower rate.

Indeed, Kiwibank chief economist Jarrod Kerr made the point slowing the rate of bond-buying wouldn’t actually signal a tightening of monetary conditions, as The Treasury is issuing fewer bonds for the RBNZ to buy (on the secondary market) than forecast last year.

“I think this time next year the discussion will evolve into a “timing of tightening” strategy,” Kerr said.

Westpac acting chief economist Michael Gordon said: “An unemployment rate of 4.7% suggests that the economy is still operating below its full capacity, although the gap is narrowing.

“The best course of action for now is to let current monetary policy settings do their work.

“Financial conditions are already set to tighten over the next year or so, as unconventional policy measures are allowed to expire.”

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Result declared / Data is out that housing market is roaring despite so called housing announcement and reintroduction of LVR. Their is only a hope / anticipation that MAYBE sometime in future, housing market may cool and this anticipation is also to avoid taking action on speculati've demand, now.

Last year, had fear that house price may fall by 7% and panic button was pressed and today even after 25% and 35% annual jump in house price, it is not an emergency, if this is not a crisis than what is.

Mr Orr stand exposed but does he care or has any shame. Will again tomorrow shamelessly stand before the camera with blatant lie and manipulation to justify his inaction to support speculators / ponzi.

Sick men should go and this time, if he tries any of his stunt should be publicly.........

The data this article refers to is from January-march so doesn't say anything about the results of the more recent changes.

Not that I disagree that more action should be taken to being down house prices, but this data doesn't say anything about the changes in interest deductibility or the LVR ratios.

So timming of the data is to keep the housing fire burning by adding to FOMO

I'm simply pointing out logical inconsistencies in your post - if you want to argue that the recent measures have had no impact, you need data that actually reflects the market after those measures were taken. I am not opposed to further action such as restricting interest only loans, introducing DTI ratios etc and would be happy to see house prices trimmed by 10-20%, but please lets keep the arguments logical.

Check the current data / auction result for the price that houses are been sold :

I could do, but I'm not committing the time to analyse and collate all that. If you have done so, please share and feel free to use that data to support your agenda.

The best recent data I'm aware of is April's HPI release (post interest deducibility and LVR ratio changes). These showed significant slowing of the market compared to the few months before, with some falls for the month and an NZ-wide 0.6% increase for the month, vs 27% for the year. Still too much, but I don't blame the RBNZ for wanting to see another month or two of data to see if this is a blip, a slowing or a tipping point.

Logic has well a truly left the building in this neck of the woods.

It's time you gave your continuous daily diatribe against Orr a rest


Why? He's the local head of the central bank hydra, of course he will be targeted by those angry at the destruction of our monetary system at the hands of a group of reckless individuals.

Why? Because it is ineffective.

The usual suspects in a circle jerk screaming the same thing over an over again. We heard you the 1st, 2nd, 3rd and 4th time when you claimed "Orr is the devil and and real inflation is 50%."

Saying it over and over again is ineffective, boring and annoying. But hey, you get some thumbs up by the crew so rock on.

Agree is repetative but so is Mr Orr and others. Though have to agree that has valid arguments and it should be media that should be hammering for answers but are mostly silent.

How do you get away with posting 'circle jerk' in just about every post? No sanction whatsoever. Saying it over and over again is boring, puerile, and abusive.

Understand that many will be upset as Mr Orr is seriously working for them and will not like the party to stop.

I would have expected that any house selling this year would have sold at a profit unless it had been bought in late 2020 ie. it had major problems ie was now a leaky home.

A key issue that is coming especially for those that have paid 50-60% above the market value of their house is the value of rate rises especially in the capital. Yesterday Hutt valley council indicated that rates would rise 6% this year and every year for the next 10 years. For a house with a $4000 current rates bill (average house rates bill in the hutt valley) that means by 2030 rates will have almost doubled to $7500. Meanwhile the capital is proposing a 16% rate rise for this year alone with decisions yet to be made for future years. No chance now of rents falling in the capital and retirees may find moving out of Wellington may be the cheaper thing to do.

"A key issue that is coming especially for those that have paid 50-60% above the market value of their house"

50% to 60% above the DGM fantasy value perhaps, but not the market value which is the real world the rest of us live in.

50% to 60% above the DGM fantasy value perhaps, but not the market value which is the real world the rest of us live in.

Right. Market value. Problem with the destruction of the money supply is that the 'market value of labor' doesn't inflate as much as asset prices, particularly for houses as this is one of the primary channels by which money is being created.

Some interesting snippets here.

"House prices have quadrupled since 2000, but household incomes have only doubled. Only a halving of house prices would restore affordability to the same levels as 20 years ago any time soon."

"To illustrate this, the value of houses rose $136b in 2020, which was worth three quarters of total household disposable income from actual work. House values rose nearly 17 times more than incomes rose over the last 12 months. Most home owners now “earn” far more from their houses than their jobs or New Zealand Superannuation, and have done for most of the last decade."

"Rent subsidies paid by the central government are forecast to rise from $2.6b last year to $4.2b by 2025." "...the Government could currently borrow over $400b with that $4.2b of rent subsidies. At $500,000 per dwelling, that $400b would “buy” 800,000 new homes, which would be half the current housing stock of the entire country."

Emergency accommodation "is costing $1m per day putting New Zealanders up in motels, Willis says. There are families raising kids in boarding houses and hostels. That has massive inter-generational costs.”

Thanks for the link Stuart, yes property is indeed a great way to make money

Thanks for the link Stuart, yes property is indeed a great way to make money

More accurately. Destruction of the money supply through the property ponzi is a great way to destroy the value of labor.

Haha, you're funny. Here's an extract from the link for you: "The gains are huge. The median resale gain over the first quarter of this year was $315,000, up $24,000 from the fourth quarter of 2020 alone"
In other words, property is a great way to make money

Yes, it currently is. If it brings our whole economy crashing down will you still be doing cartwheels?

Property has been a great way to make money. No guarantees going into the future - the government might finally have turned against it.

In other words, property is a great way to make money

No credit-driven property bubble is a 'great way to make money'. Ever. History shows they have all ultimately failed and created more problems than wealth.


Brace yourselves for another disappointment. Atleast that's one thing consistent with Orr & the team. Expecting some quotes from Orr like "its too early to tell" "we're going to stay the course" "It's a game of patience" "first world problem" "we've done bloody well"


And ‘I made a million dollars on my property portfolio this year...ops I mean we’ve maintained financial stability by lowering interest rates further...’


Jenee, Mr Orr will be repeating what Fed said, so not waiting for what Mr Orr has to say. Also Interest rate will not rise in near future and even if it does will be marginal. Question to be asked : In low interest environment - What is Mr Orr doing to control the inflation (particularly ever growing house price) or will he like earlier, this time also get away with an excuse that housing ponzi is only a side effect of low interest.

Perception was that Mr Orr was playing with time, as has no intent to act on Interest Only Loan and DTI will prove to be true tomorrow and confirm that perception is not without solid reason.

Under pressure may not decline outright ( though can never underestimate his arrogance) but knowing his type of DNA is bound to delay the action further by any of his antics - which one and how he use, will only know tomorrow.

You know what if Jacinda copied and governed the same way was Trump, we will all be screaming. Why is it ok for Orr to copy the Feds? Has he got no originality? Why are these lot getting paid? I mean they add zero value, don’t have a mind of their own and are incapable of thought.

There are a swag of commenters here who will tell you we have no option but to follow The Fed...when they cut, we must cut, when they print, we must print. Ultimately - if true - it means Orr is just a highly paid figurehead with little to no real power.

He has real power. But, if he went against the global consensus, there is collateral damage. Say he adds 1% to the bank rate tomorrow, it would likely drive down house prices (and probably other assets), but would also impact on business investment and for sure would make the NZD stronger which hurts our exporters.

It's a tough balancing act and whatever he does there are losers.

Would a stronger NZD make the cost of petrol and other imported goods cheaper? I think farmers use fuel the same as everyone else. Can you explain why our exports still matter when we seem committed to 'print & spend' as the foundation of the economy? Might make a great rebuttal to our MMT friends who think that the state makes the money and the finance minister should have a printer set up in his office.

Yes, it should make petrol cheaper. Our exports do matter as without them we can't afford to import oil/petrol at all, in the long term. If we want to keep buying petrol, we need to generate the money from exports or selling our assets.

Despite what you hear, there are lots of companies quietly plugging away and exporting goods and services to the world and doing a great job of it - you'll find a few of them on the NZX. Companies like SKL, FPH, NZK, SKO, TGG, FSF.

'If we want to keep buying petrol, we need to generate the money from exports or selling our assets.'

What about MMT? i.e. the government just prints money and we are all rich beyond our wildest dreams. So why do we need farmers? Central banks and governments are already operating a quasi-MMT system, ushered in since the GFC.

I guess we can print and convert to the USD or whatever currency we're buying in, which has the effect of weakening the NZD. I'm quickly reaching the end of my knowledge here - my main point is that in any RBNZ decision there are pros and cons to whatever they choose to do. They are having to juggle many balls and I don't envy them. With hindsight, I disagree with the decision to act so decisively last year, but at the time I fully understood why they acted and didn't disagree.

Hmm... Does this imply that our interest rates should be influenced by the balance of payments?
I can see the reasoning, but it doesn't seem to apply in real life when you look at relative global interest rates.

It's not, it just needs to happen to avoid more damage down the line.

Actually NZ would in the long run do well by bucking the global money printing mania, going by prior history from the post 1987 period.
Following Roger Douglas' freeing up the NZ economy in 1984, there was an everything boom like we are having at present. But after the 1987
commercial property and share market crashes, RBNZ did not follow the Greenspan Fed's easy money policies. Instead, we had a 5 year recession,
which in accordance with Austrian economic theory, liquidated all the malinvestments. Subsequently NZ enjoyed decades of economic growth with low inflation
and ever decreasing government debt, with a couple of bumps caused by the GFC and the Christchurch earthquake.

Under Robertson and Orr, we're going back to the Nixon/Arthur Burns policies which led to the stagflation of the 1970s.

Great post

Like the analogy that destination has been decided, which is "No Action".

Only the path leading to it will be known tomorrow.

Have seen working of few committees and how experts and analyst first decide the outcome required and than how they work backward to derive at reasoning and arguments to support the pre determine outcome.

Earlier could get away easily but today with internet and social media is hard to avoid though will still get away because of the power that comes with being governor of reserve bank.

Bigger the power, Bigger the responsibility, Bigger should be the accountibality but today accountability in worst scenario is resignation and reason given will be either sick or personal reason to save the embaressment and the culprit resign with all perks and benefit to enjoy the retirement with no remorse. Personal accountability is missing.

My bet, he will copy what US Federal reserve says which is the inflation will be temporary due to supply chain disruption, then something like what he said last time "we will keep monitoring the economy closely, and act accordingly. We are prepared to lower interest rate but interest rate now will still stay same. ";)

Grimes is the only one saying 'urgency'. Is he smarter than the others or is he brave? My guess is both.

“[T]he profitability of local small businesses is still finely balanced, with around a third of SMEs [small to medium-sized enterprises] seeing an increase in profitability in the last three months, and the same proportion seeing profitability fall"

It's almost like a normal market. "Statistics NZ say only 37 percent of ‘micro’ businesses, or start-ups, exist after two years."

Interest rates are not set by little old New Zealand, although it benefits those in charge to have our mass media (Interest excepted) focused on the circus of the RB announcements, interest rates can only be raised in concert with the Fed.

Fail to play the game will lead to your currency going through the roof, exports consequentially stopped and the Aussie banks laughing all the way to the... well to themselves as they gouge us on mortgages more than usual due to cheap international funding.

Debt is the noose around our necks.

It's been deliberately done. A form of Mutually Assured Destruction, lower interest rates and pile on the debt, then claim interest rates can't be raised because of all the debt. The central banks have deliberately co-opted everyone into their nightmare, they've made us all part of 'too big to fail'.

The reaction to move the printing press speed control to 11 was due to the slavish belief that growth is critical. It is critical because otherwise you have to pay off your debts instead of leveraging your paper gains for more debt.

This obvious idiocy (belief that growth can be infinite) has been pointed out by PDK and others but we at this late stage in our exponential growth curve (any positive inflation rate is exponential compared to a base, the "magic" of compounding interest) we have reached a place where the only growth to be found is in leverage on leverage.

If we can stop leverage on leverage (equity financing, CFD's etc) there is a slim chance that over time wages will enable a recovery (slim but there). Chances of that, near zero due to the MAD as Tom has pointed out. So destruction it is but being able to ride out the coming years means you need to sell as often as you buy (dollar cost averaging) and keep leverage down.

Interest rate cannot go up in isolation but measures to control the side effect of low interest rate should be put in place as soon as.

Critisim and failure of Mr Orr is for not looking at a bigger picture but working solely to promote and support housing ponzi. May be he is right, as only economy in NZ is housing economy but than, it is this that has to be changed and his reluctance is adding to the crisis, which will be faced by generation to come.

Like any dictator, who is not able to think beyond, should go for the betterment of the society.

Some people work to help the society and some people contribute by not working and Mr Orr falls in later category. He will do good for himself and the society by resigning.

"I NEED MORE DATA!!!!" - Orr's response to any question involving action that isn't stimulatory.


I simply cannot accept the labour market being so tight when you have over 1.2 million people receiving some financial state assistance. People have lost the incentive to work due to failings in the structure of our welfare system.
I know of many cases where a beneficiary is penalised by complex and outdated systems that create the, I cant be bothered attitude.
The system is very broken.


They rolled out middle class welfare with WFF, older people get winter energy payments additional to their super, people struggling to pay their rents or mortgages get accommodation supplements.......once you roll all this stuff out you can never roll it back, and the socialists know this. It happens in increments, before you know it it is embedded.

Your comments, and those of many others on this site are on the money. Unfortunately Grimes is the only economist of note who is saying the same.
Orr's so-called success in growing the super fund during his tenure was really due to the tail wind of the post GFC money printing, not any special skill on his part.
And now he is demonstrating his incompetence by blowing the biggest ever bubble in NZ, aided by a clueless government which gave him the "full employment" mandate,
an excuse for money printing forever.

Annual change -Stats NZ
Inflation experienced from the March 2020 quarter to the March 2021 quarter
households overall – increased 0.7 percent
beneficiaries – increased 1.6 percent
Māori – increased 1.1 percent
superannuitants – increased 1.2 percent
highest-expenditure household group – increased 0.4 percent
lowest-expenditure household group – increased 1.2 percent.

Lies, damned lies and stats NZ. We all know inflation is running at 20%... you only need to look at house prices to know this is true.

Assets price inflation will bring up inflation in general, the data will catch up. It will push price to go higher if you understand M2. They can't hide it forever.

NZ banks' balance sheets contracted between Mar 20 to Mar 21 from $631.371bn to $630.135bn. Link

Yes, but loans and advances still rose. Was due to a contraction in derivative use and bank (asset) deposits, not loans falling. Likely due to a reduction in offshore wholesale funding, e.g why fx basis was so low.

The transitory/not transitory inflation debate continues.

David Rosenberg is one economist who thinks it's transitory.

Economists are like belly buttons.....we've all got one. At least, every bank and media outlet seems to have several on hand with an endless supply of commentary.

"Economic conditions do not warrant tightening, therefore we should hold interest rates"

"Economic conditions do not warrant emergency policy settings, therefore we should restore interest rates".

I prefer the latter interpretation.

OCR... Will Orr stand by and do nothing as SME business is crushed by mass inflation, or will he chose to hose off inflationary pressure by lifting the OCR. Its protecting the average taxpayer/SME business owner v.s.continuing to protect the Speculators and their banking masters

What to do....

For 9 years Sir Bill English cut deficits in the hunt for surpluses. Cutting the guts out of infrastructure and health and education. Richardson cut the guts out of welfare spending. What they were effectively doing was the equivalent of transferring those savings into a sinking fund that represented unspent expenditure on infrastructure, health and education. That sinking fund is still there. All Ardern and Robertson are doing is tapping into that fund. If it results in increased debt so what. It represents what English should have done and didn't. They have spent $14 billion on covid wage support. Now they are spending necessary $billions on welfare. At a low rate of interest. All at the expense of the incomes of savers from $200 billion of Term Deposits. Just my view.

interesting that an auckland house owner got $200,000 on average from Grant and Jacindas policy decisions this year - and the beneficiaries got $50 a week -- but everyone thinks shes a socialist - hell they are the best thing thats ever happened to asset rich !

Woah woah woah hold the horses

"Asset price inflation (particularly of houses) that is driven almost solely by monetary policy, is causing massive social dislocation"

I thought we collectively didn't agree on that. I thought the overseas data was inconsistent with the NZ market. So what gives Grimes?

Also, why should business care about low OCR? Lending to business is down. DOWN. It's not interest payments on debt that's killing productivity. Or does Business NZ have a couple of Banking CEOs leaning on them. Business should be arguing higher interest rates which would see more investment in businesses.

Any attempt to move the interest rate up at this moment of time will cause major instability in the entire economy.

There is no point trying to crash the housing market, when you won't have a job to apply a loan to buy one- even then it might end up crashing the rest of the economy but the housing market.

The odds don't look good for DGMs.

You can still be a DGM and say prices will increase by pointing out it's a near hyperinflationary environment driven by expansion in money supply and low interest rates, causing people to reduce their exposure to NZD. Spruikers just don't call it inflation, they call it 'gains'.

For nearly all FHB, they're better off to go through a serious recession now, have poor employment options for a few years, especially if it means house prices fall 50% or more. That means instead of have a $500,000 mortgage to pay, they may only have a $250,000 mortgage to pay and over the next 30 years or more, and that's a fantastic thing for them.

So hardly a doom and gloom scenario for young people. What you describe is nirvana for them, its just that what you can't see from your point of view, is that young people are already living in hell because of high house prices! But hell for you (for whatever reason) is falling house prices (how many do you own?).

'Any attempt to move the interest rate up at this moment of time will cause major instability in the entire economy.'

Just shows how fragile the whole house of cards is then, because the OCR is only at a paltry 0.25%
One gust of wind and all that.
If it's all so fragile, why are so many deluded plonkers ploughing billions of borrowed dollars into property? They are just playing a giant game of chicken.

Because the moron bubble is easy. Just borrow and pay more that the next person. Untill there is not a next person. Press the reset button.