By Bernard Hickey
The Reserve Bank has held the Official Cash Rate at 3% as expected.
But it has signaled in its December quarter Monetary Policy Statement (MPS) that interest rates are now expected to rise “to a more limited extent” than it projected in its September quarter MPS. The Reserve Bank said economic growth had moderated with weak business investment and household spending because many were cautious about adding more debt.
It also saw little evidence that the expected spike in headline inflation because of October’s GST hike was being passed on in into higher underlying wage and price inflation.
“While interest rates are likely to increase modestly over the next two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing,” Reserve Bank Governor Alan Bollard said.
Back in September the Reserve Bank forecast the 90 day bank bill rate would rise from 3.3% then to 4.7% by the March quarter of 2013, including the potential for an OCR rate hike the March quarter of 2011.
Now the Reserve Bank is forecasting the 90 day bill rate will rise to a peak of 4.4% by the March quarter of 2013 with the next hike in the OCR not implied until either the June quarter or the September quarter.
Elsewhere, the Reserve Bank also signaled it wanted the government to reduce its structural deficit, arguing this would allow the Reserve Bank to run lower interest rates and would take pressure off exporters because it would allow a lower New Zealand dollar. It also estimated the Christchurch earthquake had triggered reconstruction work that would add NZ$5 billion to GDP. This would help GDP growth rebound to almost 4% by the middle of 2012 from below 2% for most of 2011.
‘House prices still over-valued’
It also forecast house prices would continue to fall through 2011 because prices remained expensive relative to incomes and rents.
“This overvaluation, along with some gradual increase in mortgage interest rates, is expected to see house prices rise only gradually beyond 2011,” it said. It forecast house prices would bottom out in late 2011 before recovering to 2009 levels by 2013.
Prices would, however remain below their late 2007 peaks.
What it means for mortgage rates
The Reserve Bank now sees short term wholesale interest rates rising only another 1% or so over the next two years, rather than the 1.2% it had been expecting in September. It is now also projecting that rates won’t start rising until after the middle of next year.
This means floating mortgage rates are now expected to rise from around 6.2% currently to around 7.2% by the end of 2012 and won’t start rising until the second half of 2011.
Fixed mortgage rates, which are currently around 6.5 to 6.6% may even fall slightly in coming weeks if the markets and banks believe the Reserve Bank’s more moderate outlook.
What I think
Anyone who arrived from Mars after a couple of years away and looked at Reserve Bank’s December quarter monetary policy statement would be scratching their heads.
How is it a Reserve Bank can virtually promise to keep the Official Cash Rate on hold at 3% for another six months when headline inflation will hit 5% next year and it is forecasting economic growth will rise to 4% within the next two years? Surely this does not compute?
An OCR lower than inflation and economic growth for a couple of years?
Surely that will just inflate yet another credit-fueled bubble? The Reserve Banks is relying on the power of households and businesses remaining reluctant to take on extra debt in the next couple of years.
The initial signs are the Reserve Bank’s confidence in the power of deleveraging to keep a lid on the economy might be justified. But I worry that the banks are trying to unleash those animal spirits in the housing markets again.
Mortgage approvals have surged again in the last four weeks and the banks are out again offering 90% plus home loans. ANZ’s new CEO David Hisco even told us this week the country’s biggest bank was “bank in the game” and loosening its credit rules a bit to increase demand for loans.
House prices are already stabilizing in the wealthier parts of the country. The Reserve Bank’s strategy has some risks attached.
What the Reserve Bank said. Here is the full release below.
The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 3.0 percent. Reserve Bank Governor Alan Bollard said: “Interest rates are now projected to rise to a more limited extent over the next two years than signalled in the September Statement.
“The pace of economic growth appears to have moderated. Corporate investment intentions are now below average. Household spending also remains weak, with household credit still flat and housing market activity slowing further. House prices may decline a little further in the near term. This continued household and business caution suggests current low interest rates are having a less stimulatory effect than in the past.
“On the positive side, activity in New Zealand’s trading partners continues to expand. Growth in the Asia-Pacific region remains strong, and growth in the US and UK has turned out a little stronger than was projected. Consistent with this, export commodity prices, which were already very high, continue to increase. While this is encouraging, downside risks to global growth and export prices persist.
“Repairs to earthquake damage in Canterbury are expected to add to GDP growth over the projection period. The earthquake appears to have caused about $5 billion of damage to infrastructure, and residential and commercial property. “While the near-term outlook for GDP growth has softened, beyond this, higher export volumes and earthquake repairs are expected to push GDP growth above that projected in the September Statement.
As growth recovers, current spare capacity will gradually be used up, causing underlying inflation to pick up. More immediately, the recent increase in the rate of GST will cause headline CPI inflation to spike higher temporarily, although there is little evidence of this spike affecting price and wage setting behaviour.
“While interest rates are likely to increase modestly over the next two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing.
“The New Zealand dollar has appreciated significantly since the September Statement. Sustained strength in the currency is inhibiting the rebalancing of economic activity towards the tradable sector. Accelerated elimination of New Zealand’s fiscal deficit could help improve national savings, thereby easing current pressure on interest rates and the New Zealand dollar, and reducing New Zealand’s dependence on international borrowing.”
110 Comments
Bernard
You know what those aliens might find funny and what I find particularly ammusing is that you think that these people actually know what is going to happen!! They don't. Wasn't it just a few meetings ago they and you were telling everyone floating rates would be at 9% really soon? Well that seems to be out the window! They are not fortune tellers Bernard, they like everyone else don't know the future.
Maybe you don't have to be a fortune teller, perhaps a quick look through the rear vision mirror, might tell you where your likely to end up.
http://www.nzs.com/new-zealand-finance/interest-rates/1988/
Guess in some ways you had to have been there to "get it".
Money, amongst other things, is a commodity.
That maybe your forcast, just as Bollard has his. But whos to say either of you are right or for that matter wrong. My point was I find it funny that BH gets in a tangle trying to work it all out when a simple disclosure message at the begining of crystal ball segment of OCR statements may help
"The following forcast may be wrong"
http://www.nzs.com/new-zealand-finance/interest-rates/1987/
even scarier..
But the point is Bernard you need to take these things with a gain of salt. Being that they cannot predict the future as much as they think they can. It was clear to many people they were being a bit over optimistic with their growth forcast.
Also don't make it sound now like you were completley impartal at the time. Look you've put yourself out there with an opinion and thats ok. Everyones entitled to do that. Just don't be surprised if people give you a little shit if it doesn't turn out like the way you'd like.
But hey it still might. Who knows?? :)
BH and co were predicting the inevitable failure of the property bubble and trying to estimate the rate and magnitude of the collapse, while the bubble promoters sneered and laughed and claimed BH and co were utterly wrong, and that the bubble would go on expanding forever and ever amen.
Now the bubblers are desperately trying to criticise BH and co by nitpicking any minor errors in BH and co's estimates of the details, because there's no way the bubblers can defend themselves otherwise.
Well the sentiment is there... mark.s....if somewhat disingenuous ....however in the interest of balance I think you should continue with the .."JAZZ"....it is soooo very important to test the fabric of the cloak to ensure the material is worthy of the wearer and vice versa.
So...BH said 9%? or you are saying 9%? by end of 2011?
I think 7% or higher is 10% possible myself ie not likely, 50% about where we are now circa 6% and the last 40% <5.5% or less.
Ive stayed floating because what I saw ie at "best" flat rates or slowly rising at worst depression/deflation and dropping rates/OCR. This is where the mainstream is slowly starting to re-align their best guesses down, to mine.....except mine are dipping further....
Im following things like oil price, at is rises its kills recovery.....so perma-recession is on the cards.....Im kind of amazed however that despite the things Im reading panning out far worse we are not actually deflating already.....and Steve Keen and P krugman and anybody else who can justify their position based on sounds logic, reasoning, models and math....
regards
http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-d…
Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events."may be losing control"......harrrrrrrhahaha.....more likely the bond market has decided to take control......and as the rates rise over there and rise again..so they will rise here.
The RBNZ decision to hold at 3% is all about protecting the property bubbles because the banks have demanded this be done.
The export prices will not stay high. They will fall at some stage. That will expose the foolishness we see in govt and RB policies.
The deleveraging by households will not stop. It has a long way to go. About 180 billion dollars of debt to go. Expect the fiscal hole to open wider. Expect the ratings agencies to downgrade NZ. That will raise the cost of money borrowed by govt....the hole will turn black.....the only question unanswered is will this happen before or after the election.
Get the message fellow peasants, get out of debt and stay out. This is going to get a dam sight worse.
"The RBNZ decision to hold at 3% is all about protecting the property bubbles because the banks have demanded this be done."
Thats how I see it. Probably also trying to prevent further mortgage stress to get the sheeple consuming again.
But as you say, everybody is now busy paying down debt. Those that have it.
My wife just accepted a job transfer yesterday so we are moving from Nelson to Auckland. No point trying to sell our home here so we will turn it into a rental and put a mortgage against it which could be the deposit on a purchase. Option is to pay $750+ pw rent in Mt Eden ( 3 boys so Auckland Grammar is appealing ), Epsom, or Ponsonby or bite the bullet and buy. We will stay in Auckland until 2023 when our youngest would be leaving secondary school. Rent for 13 years at a cheaper weekly cost than a mortgage ... or buy at a higher weekly cost but expecting that house prices might double in the next 13 years or at least go up 50% ... nice low 6.2% floating rates make the latter look attractive ... at 9.20% of 3 years ago a no brainer ... rent !
Interested in others thoughts
Interest
Nothing like the joys of becoming a reluctant landlord! Just one question. If you could have sold Nelson, would you have? If so, and you can't ~ aren't you just adding to your problems if you buy in Auckland? I mean, why have potentially two houses you can't sell at the right price in the future, instead of just one?
my 2c worth would be go renting but keep an eye out for any bargain (unexpected sale). We saw a 5bd rm property at top of Mt Eden recently (GS Zone) - the developer had to liquidate all of his assets - Attended the auction and it went for a song. Not everyday item but such properties do come up now and then..
The Nelson property is likely to decrease in value in the short - medium term - whereas an Auckland property has a chance of retaining its present value and/or make some capital gains over that same period.
If you have debt on the Nelson property - try to quit that property. I have a brother in the US who has been a reluctant landlord for 5 years now with a house in a small provincial centre - it's been nothing but massive problems. As the economy in rural/provincial America has worsened over the 5 year period - the only prospective tenents have been beneficiaries - and they all (every one of them) have got behind on rent payments - leading to his having to travel back to that jurisdiction to evict them, repair the house damage and start the whole sad rental process all over again.
Whereas initially 5 years ago when his job was transferred, he might have lost $5 - $10K of his capital .... now he's looking at $40 - 50K losses and he still can't sell it. Not because its overpriced, but because generally those Americans without a home, who might be buyers, can't get finance approved anymore (and he's had a number of his renters who have tried).
Just consider the potential unemployment situation in Nelson going forward - and you have your answer there.
BTW - we recently renovated a farmhouse in Palmerston North and rented for a 12 month period while we found the new place and subsequently undertook the building work. The place we rented was in a highly sought after area of town - a decile 10 primary school at the end of the road and the Hospital within 3 blocks walking distance. We have been out of the rental for about 6 months - and our ex-landlord is on her fourth set of tenants in that period. The house is quite run down and the maintenance is costing her heaps. New water cylinder the other day - kissing $2,000.00 goodbye. And that's only one of their 10 or so rentals. In the absense of capital gains - being a landlord is bad financial management.
Conventionally buying a house for 13 years would be the sensible thing to do.....mine has gone up 2.3 times in that period....however I wouldnt buy today....I'd aim to rent for a few years and wait for the soon to be burst...
Adults always make their own decision.....
I much prefer Nelson to Auckland myself......
regards
Same thing happened leading up to last years budget; bollard changed his tune as Bollard got inside word from govt on what was in the budget. Obviously they are trying to keep rate lower to help our exporters and to do this they need policy changes which will have started coming in this years budget and will more so next years budget.
Housing will get a second dose in the plan to gradually rebalance the country without causing too much shock.
Nothing wrong with this approach. If we use OCR to deal with a policy originated problem of high debt going into unproductive areas then we hurt exporters, so get policy right and prob is treated at root level.
How is it a Reserve Bank can virtually promise to keep the Official Cash Rate on hold at 3% for another six months when headline inflation will hit 5% next year and it is forecasting economic growth will rise to 4% within the next two years? Surely this does not compute?
Because the bizarrely high NZ dollar is allowing Bollard to get on with inflating away the housing debt as fast as he dares...
If you are a saver you are being robbed, and the RBNZ is doing it intentionally. Which is why, despite my concerns about future house prices, I made a decision to become a net debtor earlier this year and took on a mortgage... Now kiiwbank can wear the inflation theft of the next few years -what goes around, comes around!
Bernard, it does compute, but it depends very much on your perception of things..
If your a true socialst and Keynesian believer then you'll be left scratching your head alright. 99% of the population see it this way.
But if you look at it from a Libitarian / Free Market perspective you might be drawing a very different conclusion right now. From this perspective you might be led to believe that history is repeating a very clear tried and tested pattern, that it is very deliberate and calculated move.. following essentially what is happening in the US.
You can either believe all this was some black swan, unforseen event and we're going to get throught it eventually, or you can start to believe that actually this was planned.
Expanding powers of the SIS .. diminishing personal liberty .. increasing powers and control of the state.. muzzled media - or actually propaganda machine ... ever expanding welfare .. ever expanding public sector .. TBTF bailouts .. low interest rates ... NZ seems a lot like America to me.
You certianly have a twisted perspective.....oh wait a libertarian....99.9999% of the population are commies!!!!!
If you actually were capable of seeing the last 30 years with open eyes, its been a moniterist period dominated by neo-classical economics and not Keynesian by a long way.
If you bothered to read the likes of P Krugman (Keynesian) and Steven Keen (Mindky) they have been not only warning of this but with models explaining why it is happening....and backing that up with data as events unfold.
Black swan, no, JK might try and claim it, but a black swan is a fairly monir event in itself and possibly not directly connected to the consquences...which can be profound...With PK, SK and many others commenting on this was going to blow up sooner or later its an expected event.
Planned no, never put down to planning that first cant be explained by stupidity......
NZ is nothing like America....
regards
"US Treasuries hit by biggest sell-off since Lehman"
http://www.ft.com/cms/s/0/e550f996-0304-11e0-bb1e-00144feabdc0.html#axzz17YeDiNb1
"Borrowing costs of Western Govt's soar. Global cost of capital set to go higher and higher".
Message to JK - pity you sem to have forgot all that you learnt while working in international finance.
RBNZ and Treasury are correct - you better balance your bloody budget and close those unsustainable structural deficits. Or at least come up with a credible medium term-plan. Kicking the can down the road and praying is not a strategy!!!
Unless of course your strategy is for NZ to fall under Australian fiscal control. If so, your agreement with the Maori Party to review NZ constitutional issues is a bit redundant don;t you think?
Hi Nicholas,
Yes we would sell in Nelson but in the $500-$600k new subdivisions overlooking Tahunanui there are plenty of properties for sale and not shifting. We think we got our property at a great price in 2009 ... when the new road gets put in down to Waimea Rd I think this area will become a lot more desirable. It is mortgage free so we could use the rent to partially pay our living costs in Auckland ... unfortunately the taxman will stand in the middle of that little transaction. Better to sell it to our investment company and put it with our other rentals and get a 50% mortgage on it ... then the taxman will pay us !!
Do you think house prices in Mt Eden will be higher or lower than they are today in 2023 ... that is the question.
Much lower! I look at some very, very clever Japanese businessmen who had absolutely no idea that 20+ years of a deflating property market was coming to them. Now I'm not saying we are Japan ( expect we have spookily similar aging demographics, several steps removed). But If you'd asked any of my friends back in 1990 what they saw for their properties there, they, to a man, would have said "In 20 years time all this will have been sorted, and our properties will be worth twice as much as now!"
Yikes. Put all of your investment properties on the market now, including the family home. Some form of capital tax, stamp duty or the like is a near certainty going forward - beat the rush to the exits. Try to amass as much principle as you can for a house in Auckland. Better yet, with all that principle buy mortgage free again and invest the balance between a good super plan and precious metals.
Always amazed at ignorance of some people who in their ignorance always know better than a hard-working and rather experienced person like the Reserve Bank Governor. Some of the comments are quite insulting about the guy, but always get that sort of thing I suppose on blogs.
Be thankful he is doing an incredibly complicated job in trying circumstances, and be thankful those who comment on this site don't actually have to take the responsibility of doing anything except sound off and think that makes them experts. Jeez....
Ironically Inconsistent - here's my thoughts
http://www.christchurchaccountants.co.nz/files/OCR-December-2010.pdf
Thanks Peter for good comprehensive thoughts of the economic situation and the resulting consequences.
You wrote:
What is undeniable though is the population growth that is happening in the region, Asia, China and India – that’s a lot of mouths to feed and the world loves protein. Milk, cheese and meat will remain in demand with that demand probably increasing as global populations increase.
I’m not so sure if worldwide problems accelerating and accumulating protein is affordable. As a consequence NZfarming needs to be vigilant.
Hi Nicholas,
Japan is very different from NZ ... they have a declining population , their immigration policy is much tougher than ours, the demand for property just isn't there.
Auckland's population with probably increase by 300,000 - 350,000 over the 13 years we are talking about from todays starting point of 1.3m ... I just can't see house prices falling in that environment. With the isthmus topography in Auckland if you don't want an hours commute on the Northern, NWern or Southern motorways then the demand for houses in areas like Mt Eden with just keep prices high. If the biggest economic shock since the 1930's hasn't managed to jolt the Auckland property market in quality areas like this down over the last few years I struggle to see what will ....
And what debate are we having at ther moment? "How to pay for our aging retirees?". Guess what they have to sell? That's right...their 'super' funds, consisting almost exclusively of...property. That really kicks off next years when the '46'ers turn...65.. then it escalates for 18 years odd. But that's an aside. Why is Auckland's population going to increase? What are the 'new' going to do...except compete with the local unemployed for their jobs. Tell me 'what it is' that NZ will do that can't be done better; cheaper; faster and anyhting else you want to mention, than in Asia. Dairy farms, after all, aren't in Auckland! Until we knock this antiquated idea of ' property always goes up' on the head, NZ will not go forwards with productive output. Why work, if your property can 'make money for you'?
True NA...it is an economy not unlike a rotting house...looks great from far away but oh once you get close.....not something the govt intends to correct....indeed current policy supports landlording and bloated prices and fatter rents. Not a surprise then that saving is seen as a negative..a dumb thing to do...and no wonder when you realise the currency is being debased as deliberate policy.
Bollard is unfortunately supporting this situation by keeping the credit cheap...he wants to control the property madness...to keep the bubbles stable....but this means the rate of saving stays low because what you earn on your savings is eaten by tax and debasement...families feeding the banks not themselves...retail spend falling....consumers learning that deflation has its good points...we now wait for the post xmas sales...idiots buy today what is cheaper tomorrow.
Rural land sales come to a halt...fewer fools in this sector...greater understanding that prices are in fairy land...young farmers and their families leaving the sector but govt hell bent on selling the land at bloated prices to foreigners.
Yes Wolly, Bollard is clearly in the hands of the property rich. Key and Bollard know that cheap credit is the only thing preventing house prices falling, negative equity etc etc. If Bollard really thinks people will end the habit of a lifetime (property speculation), just because 'it's not good for the NZ economy', he's dreaming.
For the guy moving to central Auckland, if you are planning on staying 10 years plus you would be crazy to rent. Auckland economy is property. When you move here you will understand. Central Auckland property will always be a winner, just look at a map - move further out and you'll Auckland at it's worst - angry jaffas on their hour plus commute.
I am wondering why you asked the question when you already had the answer?
I wouldn't put too much trust on the comments posted here - Someone told me once; to test the credilibilty of comments made on financial webistes is to asking yourself this question "would you let that person taking care of your saving?"
Would you trust the politicians to tell you then? What about the media to tell the story accurately? Hehe.
I don't think he is silly to come here and see what some of the more critical thinkers around are thinking. He just has to be discerning about which bit he believes.
I remember when Auckland's population was 800,000 with a strong tail-wind ... now it's 1,300,000 ... probably lost a few dairy farms too out near Drury and Papakura. It is the economic engine in NZ for everything that is not Agriculture. Are you questioning the presumption that Auckland's population increase is not going to happen or that every new person will be unemployed ...
Well I am not too happy about future property prices in Auckland .
But additionally I am fairly negative about Eden/Epsom.
Because as South Auckland grows people often funnel through Eden/Epsom going to and from the cbd.
The three parallel routes - Manukau Road, Gillies/The Drive and Mt Eden Road are like raging rivers morning and night. Even if you do not live on them it is an awful job trying to even get on them.
In the decade I have reguarly visited our home in Ranfurly Road I have noticed the tempo has increased,
Those roads trisect what were comfortable leafy subrubs even twenty years ago.
Personally I think Parnell, Orakei, Herne Bay, Grey Lynn, Ponsonby are all as good as Eden/Epsom and they do not have the raging torrents of cars that Eden/Epsom suffers.
It's the attraction of getting a private school education for a public school price at AGS for our three boys that appeals ... $45,000 per year cheaper than Kings when all three are there in a few years. That's almost $70k pre tax per annum at 30% tax rate just to pay for the basic fees. Makes houses inside the AGS zone look great value to us especially as everything will be x 3 !!
I hear good things about Mt Albert Grammar ... anyboby care to offer an opinion.
I think you can answer your own question by treating it as a business transaction. Forget about the savings on the school fees and treat the purchase of a house as you would any rental, which you obviously have experience with. Does it return a positive yield. Rob of the North and I both posted the other day about the coastal lifestyles we enjoy just north of Auckland, on properties that would yield their owners 2% or less. Interest in the bank might be low, but better there than in a depreciating asset.
I did a quick analysis a few years back and concluded we were in for a massive correction in real estate prices. Just simply look at the long term trend. RBNZ has a helpful graph that plots average change in house price on top of the total value of RE in NZ. 2-3 years ago you could see we were in for a 40% downward correction to align with the long term trend.
If Key's Government gets re-elected I expect you will see private school fees decrease considerably as the government subsidy paid to private schools will increase considerably. And if that happens the premium paid on AGZ homes will plummet.
I'd buy in a nice neighbourhood with a bike/walking commute for your wife - and immediately pre-enrol the children for those private schools (I assume as long as you pay an upfront deposit, you can secure a place). The catch once the government subsidies of private schools increases is that those schools will close enrolments - so get in the queue now.
This is so not news that I even forgot it was due today. Well you better face facts: 3% is the new normal, and has been for a while. US and European economies stated more than a year ago that interest rates would remain low for an extended period. How can NZ possibly operate in that environment with a high OCR? With predicted cost of borrowing of overseas funds going up, the NZ OCR might even fall next year. There was never any question that it would do anything other than stay put this time around, and Bollard even said so in at the last review.
Quite right, Tim. And what does a falling/low, even zeroish, interest rate environment get accompanied by? That's right... falling house prices. Because genuine economic drivers are absent ( that's why interest rates are low); and as time goes on, people have to 'eat their houses'.
The OCR is an outdated tool. What is most important is what rates are the lenders willing to lend to NZ banks. For the property Ponzi to continue banks will offer fixed low rates short term and then get you by your Antarctica on refixing. They too don't want the Ponzi to collapse but watch the events in Europe closely. Spain goes down up goes the interest rates.
The problem is banks have gone out to borrow short term and then lending it long term.
Remember, you cannot put your arse on two horses and try to ride them the same time. You can try but it ain't gonna work.
My agents are reporting the Aussie$ going to make between Kiwi$1.33 - 1.35 before Santa's arrival.
Shalom Neva...... information gathered is you send your kids to AGS if they are good in sports.
Other than that, any NZ school is good with good teachers and you having to guide your kids too! - just like making a good cheese.
Nevasellayapropertya; just remember when you hit retirement age, you kids will decide your retirement home - they may apply the same benefit-cost analysis to which retirement home they will put you in.
Also, same analogy, if you use cheap diapers on them when they were babies, they will use cheap $2 shop nappy on you later on!
Despite all the comments about Bollard propping up the property bubble, inflation and currency debasement I think you will find his primary goals are to keep the economy growing, the NZD under control and medium term inflation in check.
In all cases a lower interest rate path makes sense
- It reduces the incentive to speculate in the NZD carry trade
- It gives people breathing room to reduce their debt without forcing them to close businesses or go bankrupt
- It looks past the spike in inflation from the GST hike and commodity prices coming off their lows
I agree these are real problems that need addressing but Bollard is not the right man to fix them. To me these are tax issues
- Reduce tax on income from savings
- Bring in a capital gains tax on rental properties like every other sensible developed economy
- Introduce compulsory retirement saving
If Bollard uses his interest rate sledge hammer to boost savings and fix our inflated property market we simply all pay more to our foreign lenders and carry traders making us all worse off.
- Exporters will get hammered as the NZD soars and we will find it harder to save as a country
- The economy will slow and we will become less competitive as businesses borrowing cost increase
- Individuals and families will struggle to meet their debt payments in what is already tough times
Matt S,
Is Alan Bollard well qualified and experienced person to undertake the responsibilities of Reserve Bank Governor? Of course
Is Ben Bernacke likewise in USA? Of course.
Too many on blog sites can not possibly appreciate the complexity of the situation guys like this have to deal with. It cracks me up to read comments by people who wouldn't even remotely be within a short-list of a million to be selected if they did apply, although some may be deluded to think they would win the appointment.
Hi SK - well it goes like this going to town in the morning.
Perhaps 10 minutes to get onto Gillies Ave which is often just an enormous stuck solid phalanx of vehicles at that time - perhaps 15 minutes dribbling up Gillies to try and get onto the motorway and then another ten to town. That is twenty five tiring minutes to go about 1.5km .and another ten minutes on the motorway....
I don't know about Auckland Grammar but I do know a bit about EGGS .
That is a perfectly adequate school but no better than many others in NZ - after all the staff are no better qualified or paid or committed to their jobs than at other state schools.
What AGS and EGGS do offer I suppose is a chance for your children to rub shoulders with the children of the great and the good (and the rich...).
Hi SK - well it goes like this going to town in the morning.
Perhaps 10 minutes to get onto Gillies Ave which is often just an enormous stuck solid phalanx of vehicles at that time - perhaps 15 minutes dribbling up Gillies to try and get onto the motorway and then another ten to town. That is twenty five tiring minutes to go about 1.5km .and another ten minutes on the motorway....
I don't know about Auckland Grammar but I do know a bit about EGGS .
That is a perfectly adequate school but no better than many others in NZ - after all the staff are no better qualified or paid or committed to their jobs than at other state schools.
What AGS and EGGS do offer I suppose is a chance for your children to rub shoulders with the children of the great and the good (and the rich...).
Hot off the NZMEA press:
'RBNZ: right message but no action'
The Reserve Bank has lumped much of the responsibility for high interest and exchange rates at the feet of the Government, blaming fiscal deficits for the problem. Lower interest rates and exchange rates will require both fiscal and monetary policy changes say the New Zealand Manufacturers and Exporters Association (NZMEA).
The Reserve Bank Governor Alan Bollard said at the Monetary Policy Statement this morning that, “Sustained strength in the currency is inhibiting the rebalancing of economic activity towards the tradable sector. Accelerated elimination of New Zealand’s fiscal deficit could help improve national savings, thereby easing current pressure on interest rates and the New Zealand dollar, and reducing New Zealand’s dependence on international borrowing.”
NZMEA Chief Executive John Walley says, “Alan Bollard has hit the mark with this statement. Fiscal imbalances are one of the main drivers of our unbalanced economy and it has been disappointing to see the Government reject proposals such as a capital gains or land tax and a higher superannuation age out of hand.”
“However, the Reserve Bank has the option to use existing supply side tools rather than expecting others to act. More can be done through prudential measures such as the Core Funding Ratio and Loan to Value Ratios, which can push back against foreign credit thereby reducing exchange rate pressures.”
“It seems that both the Reserve Bank and the Government are keen to pass the buck on economic imbalances. What the real economy needs is some action not finger pointing." [Ends.]
Indeed. From a reliable source:
"In actual fact the current Act already provides reasonable scope for the Reserve Bank to use prudential measures in support of monetary policy provided those instruments also help to maintain soundness and efficiency of the financial system."
So why do RB insist on the finger pointing, when they themselves could do a lot more to solve the problem?
Cheers, Les.
Have JK and Wild Bill got hearing impairment , Les ? There's alotta folk shouting at them , and they just ain't getting the message . ...... But over at Hard Labour , their platform for NZ is to expand upon the seriously dopey policies of Cullen , which got us into the poop , in the first instance .
I reckon NZ is screwed , unless a White Knight arrives onto the political scene , from outta the blue . .......... And that ain't Winsome !
Rog - It doesn't matter if JK or BE are listening - this isn't ALL their problem. Some of it yes, and methinks we'll see change to help correct it in the not too distant future, because you know who told em so .......... S&P! (RB is just repeating and reinforcing - such players eh .... )
However, the worst abuse of power is to no use what you have, and that is where RB is failing IMO and they could and should be doing more, see my comment above. It's all very well RB bollocking JK and BE, but RB have power to help sort this - on the private debt side of things - which is where the real, bigger, problem is.
Why do you think they aren't? (Wolly, any ideas?)
Cheers, Les.
Hey me, what do you know about AB and Helicopter Ben?
I suggest Ben do the cycling and Alan do the filming. Wolly, will you be more than happy to provide the nuts?
Our BH can do a better job than Helicopter Ben.
Mossad report (not WikiLeaks) ...H. Ben...a person who is beleiving his own bulls**t while flying a flag with 50 stars in it.... i.e. G. Bush, H. Clinton, T. Geithner, G. Sachs..............
A word from our sponsor 'Easy Al' is needed:
Mr Greenspan warned on Sept 24th.
“What we see is politicians cutting taxes with borrowed money, and spending on new programs, new projects with borrowed money. But the debt is increasing at a rate of over a trillion dollars a year. And because interest rates are low, being in a weak economy, it is very easy for the government to sell as many bonds as it wants. I think there’s a complacency rising at this stage. Interest rates are down for a number of technical reasons. But, assuredly they’re not going to stay here,” Greenspan warned. “We don't know at this stage why or how the markets respond to this sort of -- this type of massive budget deficit. And I think we’re taking a very high risk. This is not a tradeoff between good and bad. In fact, I sometimes put it between terrible and catastrophic,” Greenspan added.
http://www.marketoracle.co.uk/Article24869.html
Readers will notice Easy Al skips over the manipulation and money printing being done by BS Ben and fails to mention the near zero rate is a Fed fiddle.
have to agree that good central Auckland property is likely to hold its own into the future.
Don't know what it will be in 2023, but I'd be surprised if good Mt Eden property is cheaper than it is now.
I think a growing premium will become attached to such property - good schooling, peak oil etc.
Completely off topic, Bernard, but I can't help buy notice a growing similarity between the pictures of you on the start of the video above and Morressey, estwhile singer of the Smiths and champion of the common man....
http://blog.news-record.com/staff/culture/morrissey_164288t.jpg
is it my imagination? or is Bernard looking increasingly like Mr Bollard?
ls Mr Hickey putting his hat in the ring to be the next Governor?
Anything is possible-even the fact the next finance minister could be Mr W Peters!!
Life throws up so many interesting scenarios
Well, at least BH is pursuing the problems NZ have and his dreams. However, what are you pursuing? To stand in front of an oversize wrongly printed Ben US$100/- note to address the NZ assembly of Ponzi schemes? Come on ........... Let's face it. BH is doing a great job.
Rumour is noise, News is too late BUT Information is wealth. Well done BH!!
@ GBH
Yes, NZ is in big trouble in the short-medium term. Far too much debt in the system, lack of a productive industry, a divided and soft populace who have had life too easy to comprehend living within their means, and weak, populist leadership (from all parties in Govt).
NZ as a landmass does have a good long-term prospect when you consider the global envionmental and geo-political issues. However, unless NZ'ers face up to reality and take some pain now to address our structural problems, the NZ landmass will be owned by someone else. Survival of the fittest!!
When global growth truely kicks in , next year or after , I expect the price of oil to soar well over $US 100 / barrel .......... And that will be a shock to NZ . We're heavily reliant on oil , and are geographically isolated . Agriculture and tourism may struggle ........ So what then keeps the economy ticking over , and allows the populance to service their personal debt load .
Just when do you suppose the government will look more closely at the welfare system , which has served to weaken the citizenry as individuals , and to sap the life-blood from the productive individuals and businesses .
I reckon NZ Inc. will hit the wall a'la 1983 , before politicians accept the necessity of expunging Michael Cullen's seriously dopey vote buying policies . The current crop of National and Labour pollies will not do it . Gutless wonders , the lot of them .
Thanks RJ. Good to have the sense of humour.
The Jewish Banks will be good pursuing. They know how to make money(Gold) and are good at it. The others are a waste of time as they only know how to print (and print wrongly) and throw it off a helicopter. We had good information to buy gold at US$500/- plus. We did and the other bankers laughed at us. I was offerered a 105% loan by a NZ bank(100% on the property & 5% for mortgage insurance) to buy into the NZ Ponzi property scheme after my tour. I stood with information ....... Information is wealth.
Well, Bet..taw..feeq(good luck) as they say in the Middle East to Ponzi schemes.
Bollard has a very tought task here in trying to walk a path that no one has any clear vision over. He is a dove, and at the moment, that sentiment is hard to criticise. But also remember that many borrowers agreed with his dovish attitude back in the 2004/06 period (from memory) that proved to be horribly wrong and ended up with a 8.25% OCR when he let inflation get up to 5% by 2007...i.e. he also gets it badly wrong at times and we all pay the price for that.... don't just automatically assume he's right here this time
I enjoy this sight because of the varying views and opinions voiced intelligently here.
I do think that most of you would agree that Dr Bollard needs to actively deter people from the property market and into savings-which means raisng the OCR doesnt it ?
And once again after last nights TV appearance my mum will be voting for?......Winston
Everytime she has, he has held the balance of power. A touchstone maybe
Thanks Mossad, I had a seventh (88) form History teacher who encouraged us to read Tragedy and Hope. I didnt become a con. theorist but it rightfully made the world a lot smaller place and gave me a decent dose of cynicism-that has stood me in good stead and helped me make a decent amount of money(although that is not really that important)
the next generation got .........computers.......and they think the world started in the 90s and was invented by a guy called "Bill Gates" and then a guy called "Long John" brought sin into the World!!
In short this generation is ripe for a revolution that will lead to the removal of freedom except for the "privileged"
I voted for him once, because I wanted to see some heads roll over the BNZ debacle-:
i.e Chairman Ron Brierley, CEO Lindsay Pine, Board members Ken Shirley(labour/Act), Roger Douglas(Labour/Act) and some other idiots plus the banks consultants.....Fay-Richwhite....no surprise all in the trough together
but when he got into power...........nothing
now he can make a fuss over 1.8BILLION i.e the bailout of politicians and FF members that would have gone bellyup with SCF ....he is going to have an absolute field day leading up to next years election!!!
Bribery ...Sore Loser...takes many forms ..that's foreshore......and benefits.. those holding the margins..that...ordinarily would be rejected by the majority.
We have normalised...bribery...through our very own political structure.......and so at any given time the goalposts may be conveniently moved.
From a reader via email.
Higher housing prices in the past have come from the fact that banks are in business to create new money out of thin air. Too much new money injected into the economy allows people to bid up the price of houses or whatever else a bank has lent them the money to buy, and this is the major cause of inflation. We all know the penchant the banks have for wanting security for their loans, so it's not surprising that banks just love to lend on first mortgages. The OCR regime and jawboning have proven to be ineffective in preventing inflation.
It is perfectly obvious that monetary crises can only be eliminated by legislating to ensure that (a) banks stop creating new money out of thin air and become mere financial intermediaries, and (b) all new money is created as an interest-free asset for the government by an NZ Monetary Policy Committee, at the same rate as the rate of economic growth, with the goal of zero inflation.
As a result, the total annual taxation take could be reduced by the amount of new money created each year. Boom and bust cycles would become a thing of the past, and steady growth would ensue.
Peter
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