Lower interest rates would help following the latest Christchurch earthquake, although the decision whether or not to cut the benchmark Official Cash Rate is up to the Reserve Bank Governor alone to decide, Prime Minister John Key says.
Reserve Bank Governor Alan Bollard is set to make his next rates decision this Thursday, with financial markets pricing in a possible 50 basis point cut in the OCR from 3% currently back to a record low of 2.5%.
The Prime Minister has received criticism for commenting on interest rates ahead of the Reserve Bank's decision, due to legislation that RBNZ decisions are independant.
Speaking on TVNZ's Breakfast show this morning, Key said the OCR decision was a matter for the Reserve Bank Governor alone to decide what happened on Thursday.
"But certainly the markets have factored in a likely cut in the Official Cash Rate and you've got to say lower interest rates would probably help the country, but that ultimately is a matter for the Governor," Key said.
Asked about criticism that the Prime Miniister should not have talked about the upcoming OCR decision, Key said what he had said was just a statement of fact.
"It's a matter for the governor, it's exactly what I said. But, in the end the question was would it be helpful, well, lower interest rates help," Key said.
'Tread carefully' - Goff
Meanwhile, Labour party leader Phil Goff said there were two people in the country that had to be very careful not to look like they were instructing the Reserve Bank Governor what he should be doing.
"One is the Minister of Finance and one is the Prime Minister," Goff said to reporters at a Monday afternoon media conference.
"Yes, it’s fine to make a general comment that lower interest rates would be good at a time when the country looks to be going back into recession – one of only two countries in the developed world to be doing so. But a Prime Minister and Minister of Finance have to be careful that they do not look like they're directly or indirectly telling the Reserve Bank Governor what he should be doing,” he said.
“It could be interpreted as such, and that was the danger of his [Key's] comment.”
(Updates with video of reaction from Labour's Goff)
14 Comments
Assuming of course the banks pass on all of any cut in the OCR...
Not a given.
All hell will break loose if they don't, but the same banks chose to do something similar last year in Australia when they added on extra rate hikes to the ones delivered by the Reserve Bank of Australia.
We'll be watching closely....
cheers
Bernard
So we need to borrow money from overseas to rebuild with. Money we don't have ourselves; well yes we do, but it's tied up already in our overpriced residential property market. "I know! Let's drop the rate of return to attract that money from those overseas investors ". Seems counterintuative, to me.
now is seems John Key wishes to influence the RBNZ - "but really it is the govenors decision" - typical - OCR reduces ... dollar weakens...petrol prices rise .. cost of living rises... foreign investment leaves... overseas borrowing costs rise... interest rates rise....
Blame it all on the earthquake !!!
Hone key needs to respect the independence of the Reserve Bank - otherwise he is no better than a Muldoon, or currency barrow pusher.
He has shown statemanlike sensitivity before this - he should again and respect the institutions of the country - he is not a dictator - he is the prime minister of a minority government.
Even Helen Clarke and Micheal Cullen at their worst did not do this.
Appalling interference.
Quite right. Do we think our overseas finaciers are going to charge us less, just because the overnight rate for the domestic banks settlement accounts is fixed lower? I'd guess they'd be wanting more for their lendings, based on the ncreased national demand for rebuilding capital, and the significant chances of a ratings agency/s downgrade due to our deteriorating current account position.
I can only assume everyone here is either positioned to be short house prices, is debt free, or has been caught wrong footed by fixing their mortgage long term based on all this negative reaction to talk of an OCR cut.
- A lower OCR does not deter overseas investment, the dollar falls which keeps investing in New Zealand just as attractive to a foreigner and possibly more so given it will mean higher growth
- A lower OCR does help those many folk on floating or rolling 6 month mortgages
- There is no return to reckless borrowing happening, everyone is desperately trying to pay down debt, a lower OCR frees up cash that can be used to pay down this debt which we desperately need
- A higher OCR does nothing to stem global oil and food prices it can only impact wage inflation which is not a problem in our current slow economy
Goff said:
"Yes, it’s fine to make a general comment that lower interest rates would be good at a time when the country looks to be going back into recession – one of only two countries in the developed world to be doing so. But a Prime Minister and Minister of Finance have to be careful that they do not look like they're directly or indirectly telling the Reserve Bank Governor what he should be doing,” he said.
I've got a brickbat and a bouquet for Goff.
the bouquet - good on him for commenting on Key's interference, because that is what it is. It is public pressure to cut.
the brickbat - shameless and insensitive politiking talking about us being only one of two countries in the developed world going back into recession - that is largely the result of a natural disaster, rather than mismanagement by the govt
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