RBNZ cuts OCR 50 bps to 2.5%, but says easing will need to be reversed once “rebuilding phase materializes”

RBNZ cuts OCR 50 bps to 2.5%, but says easing will need to be reversed once “rebuilding phase materializes”

By Bernard Hickey

The Reserve Bank of New Zealand has cut the Official Cash Rate by 50 basis points to 2.5% as a pre-emptive move to cushion the economy from the impact of the Christchurch earthquake on February 22.

But the bank has warned that the easing will have to be removed “once the rebuilding phase materializes.”

The Reserve Bank estimated rebuilding costs in Christchurch of NZ$15 billion and forecast a 0.6% fall in GDP in the first quarter of this year because of the earthquake.

The Reserve Bank said its forecasts for the economy were based on limited information and significant assumptions that would be tested by more information in months to come.

“For now, GDP growth is projected to be quite weak through the first half of the year. This will gradually build up to a very large reconstruction programme by 2012 that will last for some years and contribute to a period of relatively strong activity,” Governor Alan Bollard said.

“This will gradually build up to a very large reconstruction programme by 2012 that will last for some years and contribute to a period of relatively strong activity,” he said.

“Future monetary policy adjustments will be guided by emerging economic data. We expect that the current monetary policy accommodation will need to be removed once the rebuilding phase materializes,” Bollard said.

“This will take some time. For now we have acted pre-emptively in reducing the OCR to lessen the economic impact of the earthquake and guard against the risk of this impact becoming especially severe,” he said.

The Reserve Bank revised down its forecast track for the 90 day bill rate, but did not publish its quarterly estimates of where the rate might be.

It forecast an average 90 day bill rate of 3.1% in calendar 2011 and 3.0% in calendar 2012, before rising to 4.2% in 2013 and 4.6% in 2014.

The Reserve Bank’s 90 bill rate forecast is the closest indication of where it thinks the OCR might be, although it has clouded its forecast this time somewhat by not publishing its quarterly forecasts.

Floating mortgage rates tend to be around 3% higher than the 90 day bill rate forecast.

Banks immediately cut their floating mortgage rates from around 6.1% to around 5.6%. See Gareth Vaughan's article here.

See all mortgage rates here.

My view:

Why is the Reserve Bank cutting interest rates when inflation is expected to rise over 5% this year?

Why is it cutting interest rates back to a record low when commodity prices are at record highs and the bank has lifted its own inflation forecasts in its Monetary Policy Statement?

The simple answer is the bank wants to give the economy a confidence boost to ward off an “especially severe downturn”. It described it as an insurance policy against such a downturn.

But there is a strong case that the Reserve Bank should have left the Official Cash Rate on hold at 3% and the bank acknowledges this in its own Monetary Policy Statement.

Academic research has found that natural disasters such as an earthquake or hurricane will trigger inflation in the following years as intense rebuilding work pushes up the cost of materials and services. Higher rents and insurance costs also feed through into inflation.

Here’s what the Reserve Bank itself says (with my emphasis bolded):

“The earthquake will be causing some prices to increase. Most notably, rents – both for residential and commercial premises – are likely to increase over the next few weeks. This effect is likely to be felt outside of Christchurch given the flow of people temporarily leaving the area. In addition the cost of insurance is likely to increase.”

“The earthquake’s more persistent impact however, is the likely boost to inflationary pressure generated by the mobilization of resources required for the rebuilding of Canterbury. Because reconstruction is likely to take many years, this inflation impulse could prove persistent.”

“Given monetary policy’s focus on the medium term trend in inflation, it would therefore be inappropriate, all else equal, for monetary policy to be stimulatory during reconstruction.”

So the Reserve Bank itself is saying the earthquake could trigger a “persistent inflation impulse” through the economy.

So why is it cutting?

Here’s the Reserve Bank’s argument.

“In the near term however, the earthquake is clearly having a negative impact on activity. It is difficult to know how large or how long lasting this impact will be, but there is a risk that the downturn is quite severe. To guard against this risk it is appropriate for monetary policy to become more supportive.

Lowering the OCR should be regarded as an insurance measure, designed to help offset the negative economic effects of the earthquake until such time as rebuilding – and a recovery in the broader economy – act to draw on the economy’s surplus resources.”

Can it change into reverse quickly?

The Reserve Bank also pointed out that many borrowers are now on floating rates, which gives the Reserve Bank the flexibility to reverse the easing quickly.

This assumes the move to floating from fixed continues, given that still less than 50% of the mortgages in New Zealand are floating. There is a risk of a reversal of that trend if the banks keep their fixed rates below their floating rate, as has been the case for the last week.

Monetary policy is a blunt instrument and a double edged sword at that.

A lot of retirees in Christchurch and elsewhere are about to see their incomes from term deposits slashed.

There is a danger that just as this monetary policy easing is flowing into the economy in earnest in 12 months to 18 months time, the inflation from the rebuilding effort and inflation from higher commodity prices globally hits the economy in a double whammy.

I think the Reserve Bank should have waited for more data on the true impact of the earthquake and put a bit more faith in the resilience of the New Zealand economy.

It has now opened up the risk that a slow growing economy is burdened by inflation and higher unemployment.

Today’s cut may be seen as the day New Zealand invited in stagflation.

Economist reaction:

BNZ's Stephen Toplis:

The March 2011 RBNZ Monetary Policy Statement revealed a Reserve Bank exclusively focussed on the Christchurch earthquake. Fears that this event might derail New Zealand’s nascent recovery led to the Bank slashing its cash rate by 50 basis points to 2.5%. However, the Bank was very quick to point out that this reduction was an “insurance” or “emergency” cut and would be removed as soon as matters Christchurch settled down.

Moreover, officials were equally speedy to note that the Bank’s view of the world already incorporates a very dim short-term outlook for New Zealand such that very weak near-term data will not increase the odds of a further cut.

As a consequence of today’s reduction, we have shifted the starting point in our own forecast track to 2.5% but have not changed the rest of the track at all. We still believe that the Reserve Bank will be pushing the cash rate higher by late this year/early next and that it will be 4.5% by the end of 2012. Interestingly, this is now very close to the RBNZ’s own published predictions.

The Bank’s 90 day bank bill track implies the cash rate will be 75 basis points higher than where it is now by Q1 2011 rising to around 4.5% by late 2013. It is also worth noting that the Bank’s bill rate track doesn’t drop to a level consistent with a 2.5% cash rate at any stage. This implies that there was significant debate as to whether a 25 point or 50 point cut at this juncture was appropriate. That said, the Bank’s rhetoric suggests that it had already been spooked by macro data coming in softer than anticipated even prior to the earthquake.

We’ve always been in the camp that rate cuts were the wrong instrument for the task at hand and remain of this view. However, we can see why the Bank would go 50 rather than 25 in that if you are to support confidence you need to provide a decent shock not a dabbling at the margin. Moreover, by going 50 the Bank can be more adamant that no further cuts will be forthcoming and hence have greater control over the shape of the yield curve as well as the starting point level. We are a bit concerned that the Bank spent very little time discussing the inflationary impact of the earthquake but chose rather to talk about the real economy effect and the personal costs associated with the disaster.

Fundamentally, we believe that the earthquake has significantly raised the inflationary pressure on the economy as it is as much a supply shock as a demand shock. The Reserve Bank has lowered its potential growth forecast for New Zealand over the next few years but by only a cumulative 0.4%. It may be a little optimistic in this regard.

Perhaps the most frustrating aspect of today’s statement was that the Bank decided not to publish Chapter 5: The Macroeceonomic Outlook nor the quarterly tracks for GDP, CPI, the TWI and bank bill rates, as is usual practice. The Bank has hidden behind the fact that there is so much uncertainty that its forecasts become “meaningless”. It then goes on to say it has made a number of heroic assumptions in formulating its view.

Everyone is in the same boat so we would have thought it helpful if those assumptions had been published. As the data flow is printed over the next few weeks we won’t know whether it met the Bank’s expectations or not. This is not how one runs transparent monetary policy. Indeed, if the real answer is that the confusion is so great that the Bank had no idea what was happening it begs the question as to the efficacy of any rate change decision made.

HSBC's Paul Bloxham

Cutting interest rates in response to a negative supply shock is not the textbook response. While an event like this weakens the economy in the short run, it adds to medium-term growth as the capital stock is rebuilt. In this case there will be substantial addition to GDP as rebuilding occurs in the Canterbury region, with the RBNZ estimating capital stock damage of 8% of the value of nominal GDP.

While the rate cut may boost confidence in the short run, the risk is that rebuilding and broader economic recovery - partly due to strong increases in commodity prices -sees inflation hold persistently above the RBNZ's target zone. A targeted fiscal package would seem to have been a more appropriate response.

The RBNZ has judged that the rebuild will take considerable time and the reduction in demand in the interim - via weakened confidence and disruption - is sufficient that demand will not run ahead of supply and put upward pressure on inflation over the forecast horizon.

The RBNZ's inflation outlook is largely unchanged from that presented in the last official statement. In our view there are a number of considerable upside risks to inflation. These include that global inflation is building, oil prices have risen, other commodity prices have risen, and a large automatic fiscal response to the quake, via the Earthquake Commission, will boost the economy over coming quarters.

The OCR is now back at emergency low levels of 2.5%. The focus of discussion will now turn to how soon before the RBNZ will need to begin to reverse this decision and lift rates. This uncertainty may indeed have the effect of dampening confidence.

ANZ's Khoon Goh:

Policy looks set to be on hold for most of 2011. The RBNZ’s projections flag a succession of 25bp hikes from early 2012 – a faster pace of tightening than expressed 3 months ago, but with a similar endpoint. We expect a marginally earlier unwind of policy support relative to the RBNZ.

Key differentiating judgments here are that inflation pressures in 2011 are more pronounced than the RBNZ’s projection, and the current earthquake rebuilding response will be quicker than the September experience. Despite more cautious behaviour expected on behalf of consumers, financial conditions are now so supportive that the New Zealand economy has the potential to turn very sharply in late 2011. This effect is broader than and in addition to the pending reconstruction-related boost.

On the inflation front, our view is less benign than the RBNZ’s projections. We believe there are clear upside risks to the RBNZ’s inflation forecasts in the near term, stemming from higher energy prices. Indeed, when we work out the RBNZ’s implied quarterly CPI profile for this year, we get 0.7 percent for Q1, 1.1 percent for Q2, 0.4 percent for Q3 and 0.1 percent for Q4.

Lower numbers in the second half of the year are critical: the RBNZ needs low figures to see the headline CPI head back into the target band (and when the GST-induced CPI surge in December 2010 falls out of the calculation). Such quarterly outturns, in the absence of a sharp correction in commodity prices (which to be fair is something we wonder about if policymakers across the G7 start to unwind excess liquidity), look a stretch.

To be fair, the RBNZ finalised their forecasts before the 13c/ltr hike in petrol prices. But even excluding that, the Bank’s medium-term inflation forecasts, which settle around 2.2 percent, look far too light given the known upside pressures to prices that are looming. The RBNZ noted that there will be temporary increases in rents, and that insurance premiums will rise nationwide as a result of the earthquake. In addition, construction-related costs will also rise, given the size of the rebuild. Throw on top of that higher energy and food prices, and we easily see medium-term inflation settling towards the top of the RBNZ’s target band rather than closer to the mid-point.

We see policy as now on hold, and the RBNZ will be in data assessment mode. We have pencilled in the first rate hike for December 2011, given our view that inflation will prove less benign than the RBNZ has projected, and that the economy has the potential to turn more sharply in the latter part of 2011. Indeed, a combination of the Rugby World Cup activity, the ramping up in reconstruction work and the diffusion of a massive terms of trade boost looks set to boost economic activity late in the year.  

ASB's Nick Tuffley:

It is unlikely the RBNZ will cut further in the short term. The timing of future OCR increases will be closely influenced by the timing of Christchurch reconstruction along with signs of broader economic recovery: we judge the RBNZ will be on hold until March 2012. The decision to cut by 50bp will give the economy some much-needed support in the short term.

It will also settle down interest rate markets: there will be far less second-guessing about any/further OCR hikes as a run of weak data gets released over the next 3-4 months. The RBNZ made it clear that this is likely to be it. Inevitably, markets will turn to anticipating the eventual lift back up in interest rates. Our view is the OCR will start to lift in March but go up at each and every meeting subsequently, to an eventual peak of 4.5%. That is a slightly later, but less gradual, start than our previous view. The risk is, nonetheless, that the start could be slightly sooner.

Timing will be influenced in particular by when the reconstruction activity in Christchurch starts to spool up and brings back the focus on the resultant and persistent inflation pressures. A second influence will be how long the economy appears to need support in the short term. Longer term, markets are still – in our view – underpricing the eventual peak in the OCR – the risk is it ends ups higher than the sub-4% currently priced in.

The earthquake itself will have inflationary effects, not just in Christchurch. The RBNZ will look through the short-term impacts, but any persistent (multi-year) pressures resulting from reconstruction will be leaned against. This period after the OCR release could well mark the low for the NZD vs. the AUD. For exporters, hedging around current levels would lock in an exchange rate that is incredibly competitive, and one that now appears to have more upside than downside risk over the next year.  

Westpac's Brendan O'Donovan:

The RBNZ emphasised that today's rate cut was not just temporary, but most likely a one-off. The economy clearly softened through 2010 - the MPS did not provide detailed quarterly forecasts, but hinted that Q4 GDP was estimated to be around flat, following Q3's 0.2% contraction. But high commodity prices are set to provide a major boost to export income, and there was a growing body of evidence that domestic activity had picked up in the weeks before the quake struck.

So while it's perhaps a moot point, it seems that were it not for the earthquake, it's unlikely that a rate cut would have been considered. What's more, softer data in the next few months will not necessarily scare the RBNZ into further cuts - with today's move it has already braced itself for some softer confidence and activity data in the near term.

With so much focus on the immediate impact of the earthquake, there is a risk that the RBNZ's inflation message gets lost in the mix - in fact, inflation was not mentioned in the media release at all. (A word count of the MPS finds that 'earthquake' outnumbers 'inflation' by about 2:1, which seems reasonable in the circumstances.) And it is worth noting that the faster tightening profile for 2012 does not completely offset the inflationary effects of easier policy today and the increased pressure on resources as the rebuild begins. Beyond the GST-induced spike in annual inflation this year, the RBNZ now expects inflation to peak at 2.5% in 2013, compared to a 2.3% peak in its December projections (Figure 3).

We suspect that inflation could reach higher than this, given the global emergence of higher inflation, soaring fuel prices, and the as-yet-unknown capacity of the building industry to meet the demands of the reconstruction effort. But by the standard of its own projections, it would be hard to accuse the RBNZ of abdicating its inflation-targeting duties in the face of a crisis. A 2.5% peak is well within the bounds of the Policy Targets Agreement, which requires an average of 1-3% over the medium term. Obviously, it leaves less room to absorb any upside surprises on inflation, but the RBNZ has already expressed a willingness to lift interest rates quickly once it becomes apparent that inflation pressures are returning.

JP Morgan's Helen Kevans:

We believed that the OCR was the wrong tool to use in response to the earth quake, but had acknowledged the decision was finely balanced, and that if a rate cut was delivered, it would have to be a 50bp move for policy to gain any traction. The RBNZ delivered the 50bp move, but made clear that the decision required many important assumptions “based on quite limited information.” The RBNZ acknowledged, though, that even before the February earthquake, the economy had underperformed, mainly owing to efforts by households to reduce debt. While there had been some signs that the economy was beginning to recover early in 2011, these were more than offset by the Christchurch earthquake.

Our view is that the RBNZ will stay on the sidelines for an extended period while officials assess the impact of the earthquake on the economy. The statement made clear today that future policy adjustments would “be guided by emerging economic data” but that the policy accommodation in place would not be removed until the rebuilding phase materialized. This will take some time.

The RBNZ acknowledge there likely would be a boost to inflation pressure as a result of the earthquake. The concern for the Bank would be the possibility that these price rises could lead to second round effects. Should higher prices start to flow through into higher inflation expectations the RBNZ would be forced to remove the current stimulus sooner than we now predict. Indeed, with the exchange rate falling and global inflation pressures rising, New Zealand could see higher domestic inflation. Now, though, with underlying inflation weak, price expectations low, and firms lack pricing power, there is little imperative to lift the OCR back toward neutral.

Interest group reaction:

Federated Farmers:

“We welcome Dr Bollard’s announcement of a 0.5 percent cut to the OCR. The damage and dislocation of the earthquake as well as the slump in business and consumer confidence has made the cut inevitable,” says Don Nicolson, Federated Farmers president.

“While inflationary pressures are building they are largely either imported, such as petrol prices, or from government imposed costs such as local authority rates, excise tax increases, the ETS, and ACC levies.

“However, we are concerned that cost pressures could easily spread through the wider economy and we will be urging the Reserve Bank to ensure it does not let inflation get out of control. Its now more important than ever that government acts prudently and does not increase spending on non-earthquake related projects, or impose any increased fees and charges. This will only increase inflation and make the Reserve Bank’s job harder.

“This OCR cut should offer a respite to business and the exporting community as a whole. We’re sure our government will lead by example and take a serious look at its books,” Mr Nicolson concluded.

(Added updated video, reaction from JP Morgan's Helen Kevans, ASB's Nick Tuffley, BNZ's Stephen Toplis, HSBC's Paul Bloxham, Westpac's Brendan O'Donovan, ANZ's Khoon Goh, and Fed Farmers' Don Nicolson)

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"When inflation is expected to rise over 5% this year"

Comments like that BH and I thank God you aren't at the Reserve.  That little 1 off GST issue has something to do with that.  So 'core' inflation is much less than that - 2.5% inflation is exceedingly healthy. 

There is a good word to be said about inflation.  Reference Paul Krugman - he has written several essays and professional journals about the good word on inflation (a good healtly 2-3%).

One other thing - and I don't advocate this - but if you truely believe that NZ has way to much debt then a moderate dose of inflation for a couple years has historically been quite effective at inflating your way out of those issues (notwithstanding collateral damage to the economy).  Reference Japan's 1960-70s property boom, massive overgearing, and economy saved by a dose of inflation (only to be undone for another property boom in the 90s).

Why would anyone save when they believe their Reserve Bank doesn't mind 'a little bit of inflation' to make the debt go away?

Do you want a financial system intermediating savings into lending?



Dear Bernard

Would you like to explain your second sentence.

"Do you want a financial system intermediating savings into lending? ""

When I was involved in the financial system, the whole purpose of the financial system was to intermediate funds between savers (usually the household sector) and the borrowers (usually business and government).

Has all this changed - is there a new paradigm?

That is the banking system...there is also an argument that equity ownership is part of the financial system and possibly something that NZers should focus on more.

Actually the system is built on fractional reserve banking. The myth that banks simply lend out your savings is what perpetuates the malaise. 

Ben I think Bernard meant he wanted a financial system that intermediated savings into lending, but that the cut in interest rates will be a dis-incentive to save through TDs etc = less money to lend.



A good word to be said about inflation...hmm yes and no.....

I like PK's work, but he misses some very important points, that make me wonder if even his ideas/ideals are workable.... the biggest is he is in the "we can grow for ever camp".....which on one level is understandable because growth used to equal more employment, hence the name of his blog....longer term though this implicitly says infinite growth and infinite resources, but we are on a finite planet.....it cant work for ever.

Ive read PK's words on that and my take is if you have no inflation some ppl will still gain anyway, therefore others will lose ie assuming two ppl on the same wage, ie if one gets a 1% pay increase that has to be matched by a 1% cut for the other....if we have or want zero inflation....so a 2 or 3% means that is sort of covered....but not really...it seems to cancel out....example, so if we have 3% inflation someone gets that 1% above, or 4% and someone else gets 2%....the latter is still down 1%....  When you look at debt then inflation is good and unfortunately the world survives on increasing debt so to keep debt afforadable there has to be inflation....strikes me as a way to make the un-workable workable....for a while.

Historically inflating your way out, indeed this was the case, the key here is historically, you miss the paradgm shift, that caused by peak oil.  Historical experience doesnt matter any more...we have never been past an event like peak oil.




I massively debate the point he is in the grow forever camp - in the 1990's he wrote two mainstream books about how it simply wasn't possible attacked the supply side and clintonesque strategic traders for thinking they could (peddling prosperity and the accidental theorist)

No one comments. Every one is on the way to the bank to get more debt to take the advantages of the cheap loan.


"Why is the Reserve Bank cutting interest rates when inflation is expected to rise over 5% this year?", Because inflation is going to be imported anyway, Fuel, Rising Commodity prices, hiking the OCR would have simply caused mortgage stress and delayed the effects of external imported costs.

So you are just pissed that this doesn't fit with your narrow view that house prices must come down, you cannot control that which is not under your influence. The RBA was always faulty in its logic anyway


Please try to learn something about economics Neven11...just a wee bit would help!

Inflation is running above 5% as you read this...the falling kiwi$ will boost that and post the election when Bollard is told it's ok to raise...you will see the rate shoot higher and faster..

The ocr move is an election year piece of govt pork. It will generate the happy headlines in the poodle media over lower floating mortgage costs and oh how happy all the indebted will be...this BS will carry on all the way to the day after the election...which is about the time the import costs start to flood into secondary inflation throughout the economy..hey presto Bollard will sing a different tune.

It is a time when they steal from savers...when they discourage saving while telling us we need to save....a time of blatant fraud....so pay down your debts while you can because Bollard cannot stop the tsunami heading your way.

Wolly, you've been reading far too many comics.  Go outside and smell the roses!

I manage to avoid reading socialist drivel Moa....much prefer scented roses....especially near the long drop!


"Learn about economics", well theres an oxymoron from a moron, any base interest rate presupposes that the 'economy' will endlessly grow which any rational person knows is impossible.

I can't see that lower interest rates and higher prices on imported goods is a bad thing in a country that has for the reecent past spent more than its earnt, it may be one way of curbing our shortsighted profligate consumption.

And yes a lower OCR will punish 'savers' but since most of the 'savers' are external to NZ and resident in industrial nations that are brutally mercantile I don't care


 "I can't see that lower interest rates and higher prices on imported goods is a bad thing" ...

Oh dear...how to help neven11 overcome his poor grasp of reality....Try this n11...lower rates will encourage greater borrowing leading to debt expansion resulting in a ratings downgrade that will force rates far higher for longer....and this....higher prices on imported goods does not mean just stuff like flatcrap and trinkets...it also hits fuel, tires, oil, export freight charges, grain, fertilisers, seed, machinery new and used vehicles and heaps of other stuff....and we just have to hope you are able to understand that all those costs flow through the economy leading to demands for higher wages, strikes, higher benefit payments and in the end when Bollard gets the go ahead to chase inflation....much higher interest rates than would otherwise be the case...

I do hope this has helped you neven11...try not to lash out with cheap shots

Oh and did I mention the fact that deposit rates will drop more than mortgage rates giving the banks a chance to fleece granny Kiwi of her small interest income....it's called a "marginfeast" by the bank bosses.

lower rates may "encourage" greater borrowing but it doesn't actually mean it will happen, for example if no one has enough of a deposit then the rates can be 0% and no one will borrow. I'm pretty sure a few years ago people were borrowing a lot more than they are today and yet the rates were 3% higher.  If people feel insecure about there jobs and don't feel confident about the economy then do you think they will borrow lots? 

"lower rates will encourage greater borrowing leading to debt expansion".....this is another myth.

the demand for new loans is based on the ability of those loans to generate a return. the banks lend only on the basis that a return will be made but also that the loan can be comfortably serviced.

Credit growth is currently anemic at best and likely to stay that way for sometime. Hopefully not as long as it did in Japan but make no mistake, the NZ economy is in very poor shape. 


Yours is one scenario, that depends on the belief that if we consume more of these items then and follow your dogmatic capitalist path then we too can become mercantile.

In a low/no growth world where we are competing with cheap labour in Asia I don't see this happening, do you?

In fact your whole staw man argument is based on extrapolating the same borrow and hope behaviour that existed during the growth phase onto the downside. This you expressed in a series of childlike epiphets and you wonder why I think you are moronic.

To give you credit you expressed your response in a more mature manner


While I think the first three paras of yours are close to complete nonsense, the last is very true ie pay down debt, but this is because I see deflation and depression/recession and no inflation.....ie a worse scenario....

I think the fools borrowing now to make them selves rich will get what they deserve (i'll leave that one open), the ones I feel sorry for are the young families just rying to get their own place, i think they will get burned and badly and it wont be their fault.


Exactly.  Any ideas how my family and I can get our own place in today's market without getting burned?

".  Any ideas how my family and I can get our own place in today's market without getting burned?"

Easy. Work out how much you can afford to pay, ( don't forget to factor in higher interest rates in the future), find a place you like within that range and haggle like a chinaman. If you can't find a place in your range in your first area of choice look in your second choice, and so on.  Not really rocket science, is it?

...... or , up stakes , and shift to Invercargill ......... the freshest , most bracing air , this side of the Auckland Islands .

Been there done that.Haha.

Bracing is an awefully polite way of putting it.....

You have answered the first, however the biggest, not being burned by large losses you have not.......



No....I personally think there is a risk of a 40% capital loss....I sont see inflation as a [big] risk

Some say interest rates could rocket....I suppose 20% is possible Ive seen it....however nasty inflation like this happens when we come out of recessions often too fast and there is increasing wages chasing too few goods....I cant see anyone saying this is the case...today....we are not coming out of this right now and money is tight...

CPI, some things like food is up, other things are down....so the thing economists look at is whats known as core inflation not CPI.....its something that takes out volitility ie seasonal price rises for veg say....thats low right now...There is fairly high un-employment so there is no pressure on employers to pay more....

From my perspective jumping in now is very risky IMHO because of the possibility of substantial loss....there is no sensible way you can ignore this bubble....The bubble wont be so bad if it wasnt for the numerous possibilities to burst it.....

The thing is time, you buy a house for years, 25 usually....prices are dropping....there is no inflation and the risks are big, I guess you have to make your own decision.


20% interest rates and 40% capital losses??!!  I've heard those kind of predictions many times over the last 20 years - instead what we got was an average of 8% interest rates and over 200% capital gains.

It's quite possible the next decade or two will see lower capital gains, but that will most likely be paired with lower interest rates....

"rise over 5%" CPI or core inflation?

If you have more money then you are not bothered with paying more for products, hence pull inflation, to cut that attitude the RB raises the OCR taking away more of your incraesing spare cash.... 

When things like petrol increase in price that has the same effect as raising the OCR, hence push inflation so raising the OCR to combat the un-combatable would be a double whammy and counter-productive to the economy...so to balance that actually th RB has to drop the OCR....

Hence why I think the OCR is a dead tool....we will never see pull inflation again....it will be push inflation, stagnation or worse deflation....

House prices must come down, well they seem to be doing so in two respects....we have had inflation over the last year but house prices have not kept up and in $ terms have dropped...When you look at the fundimentals on housing its in bubble territory and there are big issues that could prick it....the prick could cause a burst or a slow deflation....the latter we are seeing now....The really nasty one which could burst it is this oil mess....


Yippee Ki-Yay ! 

See you later I am heading down to the bank now!

Have updated with video post press conference

This is terriffic news, it makes houses more affordable (good for purchasers) and should provide some stability to the housing market (good for owners).

Indded there is probably now a good window of opportunity to get some great buys, and lock in before the end of year  fixed rate.

If you want to get the economy away from spending to saving you need to reward those that save, seems the same old problem, if you borrow responsibly then the bank has you buy the balls, i.e. the dog wags the tail, but if you borrow irresponsibly then the tail wags the dog because the alternative is unpalatable.

So forget about collective responsibility and actions, to benefit, your actions need to be those of the majority, which then becomes a ponzi scheme, and we all know how they end up, well we thought we did but with government in charge of the house we all have a few more rolls of the dice.

Why assume you can't do both? If I have $100 k in the bank, and am nowhere near retirement age, how much do you want just sitting there? 

Ever heard of risk free rate of return?

In a bank its as close as you can get....out in housing ponzi scheme land there look to be land mines....


FYI Matt Nolan defends the cut over here at The Visible Hand in Economics


Here's what he says: "I recognise there are papers that say that you should tighten policy following a natural disaster – I have read them.  They make sense.

However, they are generally premised on the economy being in “equilibrium” to start with – the New Zealand economy is currently very depressed.  When an economy is depressed a negative “demand” shock carries a greater risk of leaving the economy is a poor state (corridor hypothesis).  As someone that grew up learning microeconomics, I find this view appealing – although it is subjective.

This is why the Bank needs to respond to new information – I agree with Bernard here that if it turns out the confidence effect doesn’t exist they need to respond.  However, ex-ante their justification for cutting makes sense (I am bound to say that, as I felt that this would be the given justification).

Furthermore, I would have expected rates to be HIGHER further out – giving us a much steeper yield curve.  However, even with this and my inherent hawkishness I felt today’s decision by the Bank was sensible – demand is a nebulous concept, and when domestic demand is already very weak the downside risk associated with another decline is substantial."

Cheers Matt
Is the NZ economy currently "very depressed"?
We're also about to be hit by an inflationary surge from record high commodity prices and a lower exchange rate.
Oil prices are going through the roof.
A rate cut does little to help Christchurch. In fact, it hurts pensioners and retirees who depend on their interest payments.
Also, I wonder how quick the RBNZ can reverse.
The percentage of the mortgage book on floating is barely 50% and although the duration now is much shorter there is a risk the RBNZ's rate cut will take effect in 18 months to 2 years time just as the inflationary surge of all that reinsurance money slams into Christchurch and the rest of the economy.

Here's what the OCR cut today tells us: The economy is in such bad shape, that behind the scenes the powers that be are scared witless at the thought of what the probabilities are. Things are so bad that the economy, including sacrosanct property market, are under threat of imminent collapse. There'd be no economic reason, otherwise, to cut. So don't be suprised when the OCR is cut further, in desparation.

I'm pissed off that the idiotic OCR cut makes Bernard's absurd predictions about house prices even less likely to be even remotely accurate.

By the way Bernard, I didn't think your predictions were absurd.  If "economic/freemarket" fundamentals were adhered to it would've happened.  But, by bailing out financial institutions as "being too big to fail" the RBNZ had to bail out the sheeple for "being to dumb to fail".

Seems a confusing post....

Bernard's predictions are not absurd or in-accurate IMHO...but based on the long term fundimentals such as the 3:1 ratio...this ratio has been "proven" here and in other countires for decades and each time a bubble goes over it eventually returns to it plus there seems to be an undershoot...so for me, the wise ppl are the ones waiting for the burst, they just have to judge the undershhot....no easy task IMHO...Though I suspect the really wise ones have sold out of the property sector and into something else.... Throw in BB retirements, peak oil etc and we see huge downward pressure on property values.....

The RBNZ hasnt really bailed anyone, this is a US and EU action (so far), and seems to result from bursting property bubbles....ours has not burst so we are still awaiting....




Thanks Steven, my original post may have been a little emotionally charged.

I agree that Bernard's predictions were not absurd or inaccurate.  

The RBNZ may not have bailed out anyone to the same extent as the US and EU but we did establish the deposit guarantee which allowed the financial institutions to continue lending on inflated property values.  The implications of not doing this may have been dire but we will never know.

The wise people may be waiting for the burst, but the majority of the sheeple are not wise hence my comment "too dumb to fail".  How wise were they to purchase property at inflated values just because the banks were willing to lend it to them?  How wise were they to borrow against inflated property values to fuel their consumption just because the banks were willing to lend it to them?

I don't believe the sheeple have learnt their lesson either - they were happy to borrow when the OCR was 5%+ and once they realised they were over extended the OCR was slashed to 2.5%.  This alleviated their pain and has assisted in preventing the bubble from bursting.  I believe it has also helped "property investors" who also over extended themselves. 

I don't see the bubble bursting any time soon.  I don't see a lot of new listings and those that are coming on the market still have asking prices 20% or more than 2007 gv's.  I've seen further evidence that buyers are still paying inflated prices.  Maybe there are a lot of buyers not requiring finance but their lack of wisdom is helping to keep the bubble inflated. 

The RBNZ failed miserably in controlling the money supply during the boom period and I'm still reading economist reports about our weak housing market as if it was a bad thing.

Does the 3:1 ratio only apply to the owner occupier home or does it also apply to an "investment property"?

The 3:1 applies to any residential property...its a yard stick....it may not be accurtae 100% of the time but it seems to corrolate very well ie anyone who blindly applies a rule in an inflexible manner sooner or later gets buggered IMHO....

For investment properties there was another ratio against rent of which the comments are similar....

So where ever you look at something based on data and history and compare today we have a bubble....on the other side of the argument I feel the PIs are a) greedy and b) fearful and lack cold hard logic....almost like how the sharemarket operates....a confidence game of salesmen.

I wont play that game


Take a chill pill, Duke.

I agree with you Bernard.

High commodity prices are the result of low interest rates/ high liquidity and people purchasing commodities as a hedge against currencies and sovereign debt.

Again if you save cash you are a mug. Buy commodities, land, farms, anything physical....the people with the money are.



Excellent news of a much needed stimulus to an already struggling economy before being then shocked by a catastophic quake on 15% of the economy. The rate cut was needed even before the earthquake as acknowledged partly by Alan "economy was not growing as anticipated (ie Double Dipping)".

Yes, a lower dollar may magnify imported inflation on petrol & food - but those commodities would rise considerably anyway.  A family can use the car less - but most families have no discretion on their borrowing costs.  

More OCR cuts and stimulus may still be needed and on the way as 2011 heads into an unprecedented slump ... retailers bankrupt, vineyards mortgagee sales, homeowners forced sales, consumers still not spending due to fear,  big govt spending cuts at the next Budget = job losses,  more beneficiaries  - growing underbelly of unskilled youth due to NCEA non-education.

Unfortunately we now suffer from a lack of leadership for NZ currently run by an Internationalist (where is Muldoon? All is forgiven we need our Power Supply back and time to build another Hydro Scheme, Interest rate freezes so people can plan for the future, Start Mining developments and ignore the greenies).    

So Ignore 9% of the population..... here we have someone who sounds somewhere over to ACT, and ACT with not even 1/3rd Green votes...drill baby drill...or in this case mine baby mine......and once all that is gone?  Once we've turned sections of NZ into cesspits and waste dumps....what then? same old same old failed policies of the rabid right....no better than the same ols same old failed policies of the loony left.




Q : Why do the Australians' call PM Julia Gillard " Kermit " ?

A : Because she is nothing more than a green puppet .

Gummy you don't like women - do you ! vic - very low !

........ they bear my Gummy-Bear-lettes / cook my supper / wash me poo-ey undies / jack up the Nissan , to change the flat tyre / pump water and lug it to the mango plantation ....

........ nope , you're wrong again Walter , what's not to like about women , they're absolutely brilliant !

eewwww   way too much information there Gummy.

........ you're so right , Vera ........ embarasses me no end , to admit that I own a Nissan ....... sorry about revealing that ugly little truth ........

........ and it's an SUV ............ I am scum , truely scum ...!!!!!!!!!

Apologies to all .



I'm with u on this one Bernard...

I understand the sentiment.. in regards to the earthquake....  BUT the reserve banks mandate to solely to do with inflation.

I believe they are still operating from the "old world view"... ( the world is now living in an "global inflationary climate'... as opposed to the "global deflationary climate" we had over tha last 20 yrs.)

it shows that in the end.... when push comes to shove.... central banks are not as serious about inflation as they make out to be.

At some point they will have to get serious... and they will take on a new "paradigm shift" in their understanding of  money supply and inflation.

The old view ...for the last 30 yrs has been to allow money supply to be completely elastic, and influence demand for credit thru manipulating short term interest rates.

The first crack in that model is that it does not work very well in a "global world."

The second crack  was the Global financial crisis... and the finacialization of the western world. ( where the finacial sector is more powerful than the productive sector )

i don't think the Reserve bank understands the longer term problems ...in terms of inflation...

In the real world... a truely prosperous nation has a good level of savings...

Of course... just my opinions and views....



Cracks, well you missed two, peak oil and AGW.....savings, savings are not just $ imho....ie money reserves, this also applies to resources....oil, coal, food....I think over the coming decades the countries who husband these will do the best for their population.....What I see from the Developed nations is they have exhausted most of their inputs....so its the developing world who still have raw materials that will lead I think, if they switch on soon enough to controlling their population the odds are not good for that though.


Bollard message is:

"  I am prepared to lower it a bit now (so JK isn't embarassed) but I am going to whack it up as soon as I can so you fellas don't buy too many houses and think the mortgage is still going to be cheap in two years from now"

The wise will use this as an opportunity to repay principle as fast as they can.

That's assuming the majority of sheeple are actually wise though Gavin.

The wise will use this an an opportunity to sell to the gullible, before interest rates rocket!


Great to see you back Basel Brush III  Boom Boom!

FYI have updated with comments from ASB's Nick Tuffley (he sees no OCR hike until March 2012), JP Morgan's Helen Kevans (she didn't see the need for a cut) and Fed Farmers' Don Nicolson (who is thrilled but still wants government to cut spending)




It does seem to be a blunt tool, probably doesn't make much medium term economic sense, and doesn't really seem to be aimed at the earthquake at all. It's like somebody said it was a good idea, now everyone thinks it must be so. Kindof like MMP (over STV), or when they selected Todd Blackadder as AB captain.

absymal decision

All this is going to do is stoke the inflation fire, and boost house prices - just what we need!

Phrases for you to highlight in your thesaurus, MIA  " Negative Gearing;  Stamp Duty;  Land Tax "

That is probably what we need i.e. higher inflation and inflated house prices. So when the time does come that RBNZ reverses its decision, a lot more people be left on the sidelines unable to pay their debt. That's where the people who have been holding out will come in and buy those houses at ridiculously low prices. The bubble needs to burst.

Not sure although how long before the NZ dollars drops further.

MIA, time to buy while rates are low, lock in now!

Guys - it’s not the calculator – it’s the culture.

 An economy all designed for consumerism not productivity. An economy where savers are penalised in favour of irresponsible, big spenders living beyond their means. An economy where leaders lack leadership and responsibility for the wider NZpopulation - a doomed NZeconomy – what follows is a doomed society.

 Because of lack of interest in real productivity consequently the builders are working in “Aussie”, and skilful, talented Kiwis export them selves to other countries. Youth unemployment is exploding and lack decent jobs are a fact, which not many parliamentarians really care.

 Now having an emergency situation in Christchurch, in stead of importing urgently a few thousands experienced Asians, constructing homes/ businesses complexes the authority - minister G. Brownlee wait and see, but instead import infrastructure needs in the billions St. Joyce.

 Now in difficult times - our economy needs to be structured and organised – PM.

We do need austerity measures and a contingency plan - PM - urgently !

Dealing with houses, serving cappuccino’s, taking each other to court, working behind desks and filling up supermarket shelves doesn’t make us rich as a nation – PM.



FYI have updated with very interesting comments from Stephen Toplis. He is also worried about inflation and is critical of the RBNZ's decision not to publish its full forecasts.



Yes - Bernard - "Calculator Talk" again - my God !!!!!!!!

First home buyers in UK average age is 37.

Between December 2009 and December 2010, they shrunk as a group by 42%, thinned out by a form of financial selection in which only those with the means to meet giant deposit obligations got a loan. According to Council of Mortgage Lenders data, an average pre-credit crunch deposit (on a 90% loan) was £12,700, which equated to less than 40% of a gross average salary. Three years later, and with state-owned banks shy of finding themselves at the fiery end of another catastrophe, such generous LTV mortgages were history, and the average deposit had shot up to £31,500, or 94% of a gross average salary. Saving 40% was always an achievement. Saving 94%? More like a miracle.

As a result, today’s first-time buyers aren’t the wrinkle-free, hungry-for-life pop-video extras they once were. Discounting those with financial support from their parents, they’re (on average) 37-year-olds, with kids, bags under their eyes, and they’re taking on mortgages that might last longer than their prostates.


If the $ was . 87 to the Aussie it wouldn't be only people heading that way.

And Paul Bloxham from HSBC is also worried about inflation:

"While the rate cut may boost confidence in the short run, the risk is that rebuilding and broader economic recovery - partly due to strong increases in commodity prices -sees inflation hold persistently above the RBNZ's target zone."

Setting priorities !

 We are all worried about inflation Bernard.

Are you not worried about the government importing infrastructure needs in the billions and not allocating such orders (energy/ telecommunication/ transport) to NZcompanies to the NZworkforce ?

Are you not worried about the massive youth unemployment ? Are you not worried about Kiwi’s not having decent jobs ? Bernhard are you not worried about civil unrest ?

Bernhard -what about stopping the small talk and revolutionise the NZmedia world in stead – before it gets ugly and the public does ?


The real issue - productivity.

They are being built in Korea by Rotem Mitsui, a Korean/Japanese consortium. The project is now in its final development phase, which means you'll be seeing the trains testing on the network in preparation for their introduction to regular service.



 That’s why our economy is in such a mess depending on foreign capital and knowledge, because our parilmentariens are importing most everything, leaving the NZworkforce without decent jobs, exporting our young and talented overseas – what a business – what an economy  ???

.... and you Kiwis even don’t care about, but constantly “Small Talk” around the circle.  


It doesnt always make sense to try and make everything is small quantities......

What yoy are advocating in the extreme maybe is we should be making TVs here....but they would probably be twice the price or more......what good does that do our economy? so we keep some ppl in jobs but effectivly tax othrs to pay for employing a few more ppl via fares.....thats just a monopoly and results in monpoly pricing and lack of competitivness and innovation ie its lazy.

For the trains, if we had a base load of work and this was a fractional bit extra it would make sense I suspect.....but to make a load of trains which we have never ade before in what is a small batch just does not make sense IMHO.




valid criticism on several fronts from Toplis of BNZ

The Reserve Bank are clowns

Well this is what you get for procrastination over the past two years and notably longer with previous governements, when a economic shock comes along you have limited options.

I guess they think this is the only positive signal they can provide in an attempt to improve confidence and get some short term activity happening.

Fiscally they can't kill the stimulis unless forced... although they will tinker at budget time. All their intervention will lag.... forex, price and general economic forces.

We already have stagflation at best and we may well yet redefine the severeity of the term.

Hope you have overseas assets....

the IMF delegation due in NZ any day now......and guess wat

New Zealand is in a dangerous debt spiral


 "With the growth of government spending, the increase of the welfare state and the end of the economic reform era under former Prime Minister Helen Clark, New Zealand’s poor productivity performance of the last decade was unavoidable. Multi-factor productivity has not improved since the turn of the century."

I had to giggle at the above statement.

Political blinkers.....right is er right....

I wonder who they think they are kidding........


Re. IMF delegation visit, I  posted the question about 2 days ago if this is a routine visit or what???

Got no answers, obviously nobody knows.

type IMF New Zealand in Google News for the answer...........

Hi Gertrude. It's a routine visit. I'll be going to a briefing at Treasury when they are here on March 21



Thanks Alex and Paulg.

bet there'll be some asset sale rubber-stamping going on as well after which the govt will come out with "we don't have any choice...."

stupid stupid stupid. How long till our policy makers understand that low interest rates stimulate housing bubbles NOT the real economy. Does Bolard need it spelled out when the evils of artificially low interest rates are everywhere to see? And agree with bernard, how does this help Christchurch. Just another blunt tool. And what is the first thing the banks have done - lowered MORTGAGE lending rates. How about lower BUSINESS lending rates - is that not what we need? Surely an emergency like this provides justification for a targeted subsidy for business lending - target it where its needed for Pete's sake. Or even lending to rebuild as well.

a personal take on this

I have been keeping an eye on property. This cut now makes me think that I should dive in a bit more seriously. My term deposit matures in June, with the revised savings interest rates I see little reason to put back into savings

I think many will now be thinking this way

Property is going to heat up a bit now - not too much though as a weak eoncomy, low immigration, high unemployment, and geenrlaly poor yields etc will still constrain prices

But before I was thinking flatness in Auckland prices  for 2011 - now I'm thinking 3-4% rise   

So this policy deicsion is just moving backwards from the govt's recent shift to increase savings and move away form a debt ridden eoncomic model

Do your sums, MIA. 2% less on T/D for a year or 2% less on the purchase price. Because this is what Government doing- 'Giving on one hand, to take on the other'. And here's the spin.......... " Look. We gave you low interest rates, but we need a new source funds from you to rebuild the economy " ....So that's either/and/or.... a Stamp Duty;  Removal of Negative Gearing;  Land Tax or , the other one I didn't mention this morn, a CGT. Where do you think those 3-4% risies will come from in the face of any or all of those new Budget items?

3-4% increase wow thats a change from your 'flat prediction' MIA :)

Lower rates mean houses will be affordable for 1st home buyers which is good

My advice though is to buy to live not  to invest, forget yields when your buying your family home (no more paralysis by analysis eh :) Buy what ticks at least 7/10 of your boxes, but...don't borrow too much, have some in reserve

Good luck with the buy, keep us all posted


thx, I won't be analysing too much, other than making sure I account for the interest rate rises that will be coming in the next year! :)

I'm open minded enough to change predictions based on changing circumstances, and this is just massive

I'm overhearing conversations from people seriously looking at property again now 

It  might make my property purchase more do-able, thats positive, but I really do think in terms of the economy rebalancing it was a disastrous move

I'm overhearing conversations from people seriously looking at property again now.

I find it curious that people with good common sense about not taking on debt to purchase an overly inflated asset, would suddenly be buoyed by a 50 basis point interest rate cut on floating (i.e. entirely temporary) mortgage debt.

Whatever the interest rate on the debt, it doesn't make the asset any less over valued.  


well you are quite right

On a $400K mortgage over 25 years, its only about $30 less per week, and thats temporary

And that will probably be cancelled out quickly by petrol price increases on the back of a weakening dollar

so yeah logically it shouldn't make much dfference, but property prices are often related to confidence and perception rather than logic and reality  

Matt, Kate - it's not so much the amount of the move that matters - it's the direction, and that's opposite to what every economist & the RBNZ had predicted for 2011 - and let's not forget the doomsters that predicted 20% interest rates and 20% unemployment by now!.....

MIA, interesting response. The subtext is, you are a saver, with a TD, and as a result of the reduction in the OCR and thus bank rates, your reaction is to consider shifting that equity into property?. Makes you wonder if genius Bollard ever gets off his backside and goes out and talks to the hoi-poloi and tests the waters to find out what the consequences of his actions are.

ROTFPML @ Matt.  "This cut now makes me think that I should dive in a bit more seriously" Stop it Matt please, my ribs are hurting. Maate, there is no way you are going to buy a place, trust me. Go to as many auctions as you like and there will always be someone there with bigger kahunas than you. You will be back here wailing  how you were outbid by some damn Asian. (who unbeknownst to you is a 7th generation true blue Kiwi whose family has been here since Gabriels Gully and whose Grandad could have made the All Blacks if steriods were available ).

Keep paying your ever increasing rent and get used to it. It is your destiny and your karma. Matt buy a house; that is soooo funny.  

such a nice and constructive individual :)

I'll buy if it works - I'm not that fussed if it doesn't

All I know is I don't want to be a mortgage slave:)

MIA. The last thing you really want to do is buy anything, whether it's a car or a home, because something outside your control has made it possible. If % rates are the stimulus for your actions, or other peoples, then you/they will become that mortgage slave that you don't want to be. Will it be fun, watching the news every night, hoping that 'another' OCR rate doesn't happen today? Because from down here, that's pretty much the way they will go, even if they do dip lower first. And whilst you  may be able to sit it out, will others? And what will that do to the price of your purchase?

"such a nice and constructive individual " Thank you, darling, big hugs for you. I have this strange feeling I will be seeing your name on a tenancy application form someday. I'll probably select you: handsome fellow, impeccable references, lovely family, good job. And you will love any of my places: great suburbs, nice views, spotlessly clean, well insulated. Your wife will love the gardens; every kind of herb conveniently located: tomatoes, beetroot, silver beet and capsicums growing amongst the fabulous flowers. Not to mention that secure feeling knowing that if ever anyone threatens you or your family my boys will "take care of it for you". Don't worry Matt, everything always works out for the best. You can't stop the Universe evolving as it should.

“Who knows himself a braggart,
Let him fear this, for it will come to pass
that every braggart shall be found an ass.” 

William Shakespeare

(Luv to you too, Vera, darling)

your sooo right Vera, MIA is a big ladies shirt but he does make me laugh, his ealier prediction was for a 4% drop over 2011, now he will do his usual trick of demanding you be a man and give your prediction so that he will respect you, ha. For the record Matt, my prediction from nearly two years ago still pretty much on track except for the slow pickup over last spring,summer but autumn looks great, sorry but you had your chance[s]

Lower OCR is a big signal to overseas investors, who are way way more cashed up than the average NZ'er.

Overseas buyers able to borrow at low rates in there own country, looking for a carry-trade, which NZ very much was during the boom years (we had higher OCR than Aussy for all of this time). They could get better reward for their foreign dollar, whether borrowed or not.

Now the message is GET OUT. NZ is going nowhere fast, and Aussy provides a better and safer return, along with most of the rest of asia.

MIA: Still a lot more downside risk than upside to property prices IMHO.

OCR decision on front page of http://www.marketwatch.com/

Rbnz held rates low leading up to last years budget where there was what some saw as a surprise to take away depreciation from property investors.

Where is all our wealth in this country? What good can it do in times like these if it's stuck in paper valuations of land and houses.

Property will get another dose of increased taxation in this years budget.

There is no other way for the country to increase tax revenue

[ Gavin Jones | 10 Mar 11, 11:54am The wise will use this as an opportunity to repay principle as fast as they can.] To the contrary Gavin, 6.90% 4 year fixed mortgages with Kiwibank look a good deal to me once the inflationary tidal wave hits. What is the value of those repaid $’s in 4 years time?, considerably less than what they are worth now (and renters pay the interest).  I can see just before that 4 years is up (say Q2 2015) flicking that property for considerably higher amounts in real terms than its worth now.

On house prices. Councils have guaranteed the real $ cost of housing will drift upward. If anyone cared to graph the inverse relationship between development contributions (DC’s) increases and the number of new builds done between 2003 and 2011, you will find that with virtually no DC in place 8 years ago building consents numbered 35,000+.  Now in Auckland DC’s are $32k per unit/house and the volume of NZ consents nationwide is circa 15,000.  This trend in less consents being issued accelerated in 2008 (in my view not from the global financial crisis, moreover) because Councils further hiked up the DC’s in 2010.  It’s actually worse because many of those ‘issued’ consents do not materialise in the building occurring, many favouring to leave the consent at the Council and not pay the DC and not build.   

Put simply, the people in our left wing Councils openly criticise developers referring to them as the ‘dirty word’ concurrently they have locked in more expensive property in the future as their DC (super tax) makes building projects financially marginal and developers move to Australia. Even worse, the DC is calculated on the number of units, so if the family man wants to build a 700sqm house on an empty section then its one amount of DC of $32k, if a developer wants to build 10 medium quality affordable 75sqm apartments the DC is 10 x $32k or $320k. So the DC policy is deliberately directed at developers building affordable units (and no I am not a developer just a rental property owner with a background in investment banking).

Last thing, some question the RBNZ’s understanding of inflation with this OCR drop. When in London in December 2008 I was asking the same thing, when the RBNZ’s own website had projected inflation at 1.8% and the OCR at that time was 8.25%, those with savings in NZ were absolutely creaming it at the expense of the RBNZ throwing NZ into recession 6 months before the financial crisis effects took hold !. Happy to sit up on my horse and thrust my spear into the bulls. NZ is a medium term bear market, sit in commodities, get out of cash.

Why are so many posters worried about what this OCR decision means for inflation?

The only inflationary pressures on the horizon are from rising global commodity prices which we are all powerless to do anything about.  All an OCR hike achieves is making the average family even less able to afford these price rises by increasing their borrowing costs as well.  As a country all an OCR rise achieves is a worsening of our account deficit via a higher kiwi dollar and an increase in the interest payments we make to the foreigners who lend us money.

So what is the benefit to a higher OCR?

Ohh yes it will stop the rampant wage inflation and rocketing domestic economy we are all struggling with???

"So what is the benefit to a higher OCR?" It might put people off borrowing so much and encourage them to live within their means?? As it is, the message they are sending is that it's OK to get into debt, or more into debt, and that savers are wasting their time. I might as well go on a shopping spree...

If that was really a concern why haven’t house prices been increasing, why is net borrowing falling, why are people spending less all during a time when interest rates are at historic lows and rents are on the rise?

The reason is simply that everyone has already learnt their lesson and is desperately trying to pay down their debt and start living within their means.  Insisting on a higher OCR now is just putting the boot in when the man is already on the ground.

Ahh, no. insisting on a higher OCR would aleast help with our inflation and local commodity price problem which is making the average wage worthless by the minute.

Just because people can't pay the mortgage on a house they paid way too much for is nobody's problem but their own. Some are now paying for rubble and silt!

Lowering the OCR will just make importing our gasoline more expensive via knocking the NZD. NZ exporters still have to buy fuel here.

Bollard & Co just blew it again. Inflation is a killer, debt is a killer, and CHEAP money causes BOTH! Investors with real capital to invest in REAL businesses just took another blow

Firstly there is no such thing as a local commodity price problem since we are in a global market.  If producers can get more exporting than selling in the local market they will, if retailers can get things cheaper by importing they will.

Secondly the NZD is still very strong you can hardly call it worthless at 73c to the US.  Trying to push it into unchartered territory to contain inflation is foolish on so many levels all of which have been raised here many times before.

Thirdly do you really think a higher OCR and higher NZD would encourage investment in local business??  That simply makes us less competitive and makes parking cash in the bank far more attractive instead.  A low NZD encourages overseas investors to invest in businesses here (better value for them) and it also makes NZ businesses more attractive since it increases our global competitiveness.

"Thirdly do you really think a higher OCR and higher NZD would encourage investment in local business?? "

LOL, YES! did you miss the past decade or something? Where do you think the big four Aussie banks that do most of the business loans in this country get their OWN foreign capital from ? and based on what do those foreign investors want in return? Your clueless and have obviously ignored the last decade of NZ 's economic history!

The NZD will now slip DUE to the overseas investor perception that NZ is a goner from here on out!

Why do you think the government and RBNZ have propped up and protected the NZD for near on a decade via the OCR? Problem this time is the Bollard has been suckered in by those banks into believing a lower OCR will still help them sell loans that will in turn help their own debt problems and the pitiful economy in general. Look around at the current street environment? NO ONE but the biggest idiots are taking on more personal or business debt!

Oh,, and there is such a thing as 'local' commodity prices hence the "local" 'CPI' .

Ok no need to stoop to name calling... to your points then

The Banks will always be able to raise their own capital regardless of the OCR, as I'm sure you are aware the markets, not Bollard and the OCR determine the terms of that borrowing.  A high NZD does deter foreign investment period, it is true that high confidence and investment in NZ does contribute to a higher NZD but don't confuse cause and effect.

The international appetite for all things related to commodities is very high so the NZD is certainly not a goner.  A weaker NZD (please don’t forget we are still at 74c which is HIGH) would help us in many ways.

Bollard and the government have still do want a weaker NZD (as every other country also wants a weaker currency)

The portion of local CPI that is driven by commodity prices (as opposed to wages) is very closely linked to international commodity prices...


Point well made Julz!  The current raft of price increases is part of the process of adjusting to the reality of the true cost of energy. Thinking that hiking the OCR will affect that is like the rooster being convinced it really is his crowing that makes the sun rise.

The spirit of de-leveraging has been gaining momentum for 2 years and this will further encourage those efforts. House prices won't take off because they hardly fell, so there won't be the "fear of missing out" syndrome fueling speculation. As for the encouraging saving mantra; it is investment in productive, export and job creating industries that is needed not just saving per se. Rewarding monkeys who want to park their $$$ in the bank with no effort offered and no risk countenanced, bad idea. Chuck them the peanuts they deserve.  Hiking the OCR would increase the cost of capital to the entrepreneurs who are prepared to make the effort and take the risks. 

Exactly, and for those upset savers who are really concerned about inflation please just diversify your investments away from cash and into things like gold and inflation linked bonds.  If you stay in cash because it is safe and risk free then you must accept the low returns...

I dunno about bonds when Bill Gross the head of the biggest bond fund in the world is baling out of them and moving to cash !


In a stunning vote of no confidence in the policies of the US central bank, the world’s largest bond fund, PIMCO, has dumped all of its investments in US government-related debt, including US Treasury bonds and agency debt.

According to reports overnight, PIMCO’s flagship Total Return Fund slashed its holdings of US Treasury bonds and agency debt to zero at the end of February. A month earlier, such investments made up 12 per cent of the fund’s investments.

At the same time, the $US236.9 billion fund boosted its cash holdings. The fund held $54.5 billion in cash at the end of February, a sharp rise from $11.9 billion it held a month earlier.

You fools! ALL assets are priced on local currency  valuations. CPI Inflation and debt kills currencies and so too asset value. This is why house price increases only help push up the cost of living while at  the same time making your wages worthless.

Example: The asset (a house say) may appear to have gone up in value in $$ terms BUT.........it's at the expense of your time and effort to fund that asset in the future and your new living costs.  Hence our current GLOBAL economic crisis  situation!

For thucksake connect the dots why don't you!

As for the encouraging saving mantra; it is investment in productive, export and job creating industries that is needed not just saving per se. Rewarding monkeys who want to park their $$$ in the bank with no effort offered and no risk countenanced, bad idea. Chuck them the peanuts they deserve. 

You absolutely nailed it Vera.

Vera....   "... rewarding monkeys... '     Not sure where u are coming from... 

Savings..... investment.....consumption..     U can't have one without the other..  If u do... u end up with an unbalanced economy, with all sorts of distortions.

Savings are simply..." delayed consumption"

Are u saying we should all be consumers...?????

If we simply borrow offshore to invest we end up with the problems we have.. ( chronic current acct deficits )

Warren Buffet has the simple analogy that we are selling bits of the family farm/silverware when we run chronic current acct deficits, ( the deficits imply that we are net consumers )

The irony is that in order for NZ to become healthy again we need to "save"...  ie. defer consumption.

BUT... instead we are simply looking for growth... We are happy to borrow ...say... 8% of GDP  that generates... say... 3% growth in GDP..  

AND we call that a recovery...

There are many ways entrepenurs can raise Capital...  equity investment is probably the best...   Do u really think banks lend to budding entrepenurs..???


No Roleof I'm not saying we should " all be consumers".  We are anyway, unless we choose to live in the desert on wild honey and locusts, but I do know what you mean. The "monkeys" alludes to the level of thought the average "saver" puts into what is actually happening with his stash. They sit there smugly comfortable that they are saving the economy by saving while the bank is lending their dough on yet another residential mortgage.

And yes, the banks do lend to budding entrepreneurs, as long as they can provide property as collateral.  The economy became unbalanced because people lost faith in NZ equity markets after the shambles of the '80's. Now, instead of revitalising our equity markets so investors and entrepreneurs can dance as they should, we have become fixated on destroying the property sector that flourished in it's absence. The populist political fools, spurred on by the braying of peanut brains like BH are only serving to make that sector stronger, as is becoming more evident every day.  

Speaking personally, as a 'saver'; I'm not saying 'destroy the property market'. Just that it's had it's day, for this cycle. The evidence of that is its price. Just like the stock market ,that you mention, before it; the finance company market and add in goats, and ostriches, vineyards and host of other get-rich schemes, it's come and going. It's time for that one asset class that's been out of fashion for yonks to take it's turn, now. That asset that no-one wants ~ it's cash. And when 'everyone' has retreated back to the bank account in due course, then it will be time to go elsewhere. And the great thing about cash in times of uncertainty is ~ instantanous convertibility. The second you see 'it's time to go elsewhere/get out', you can. With a property? It can, and does, take years to convert.... by then...who knows.

Sadly....  Money (cash ) is a very poor asset class...   One of the fundamental qualities of money is that it is a "store of value".

This is one of the principle reasons that a Central Bank exists... in a fiat Money world it is the Central Bank that manages the supply of money in order to preserve its value.

Sadly...  over the last 25ish years they have been completely negligent... They have completely ignored the Monetary aggregates...   Globally.. money supply has expanded massively.

Again... sadly... we have come to believe that the CPI properly measures the impact of money supply growth... ( the store of value aspect of Money ).

BUT...  in a global world the CPI is a very poor way to measure the impact of money supply growth..

Worse still...  Modern economists have come to believe that inflation is an increase in the CPI.   (The classic definition of inflation is that it is the resulting effect of money supply growth )

In the global world .... there are structural problems in both the monetary system and Central Bank Monetary policy.

Here is a link to a guy I follow.. ( he can actually make investment calls based on his understanding of economics.)


The bottom line is..... I would be very wary of having to much of my assets in CASH..for too long.  Even now the real returns are negative..

The current commodity price boom has as much to do with Monetary inflation as it has to do with real shortages.

Cheers  Roelof



Good points and well made Roelof.

Updated with comments from ANZ's economists. They see the RBNZ starting hiking again from the December decision of this year and they're worried about inflation too,.



It's good to see RBNZ's have now reversed earlier mistakes:


As for some of the concerns listed above, the post-GFC world has brought some focus on prudential measures that can be used to support monetary policy. RBNZ have sufficient power under the present Act to use them, if they choose to. Consider:

1) RBNZ led with the CFR regs - it has a mild monetary effect that was manifest as much as it probably might be with it's implementation. I orginally thought varying this ratio might be useful to help restrain inflation, but am not so convinced now, given QE driven liquidity of 12+ funds.

2) So, RBNZ could help savers by specifying the maximum proportion of foriegn funds banks can use, and vary this ratio as a counter-cyclic measure. (Stop importing loose monetary policy from elsewhere and displacing domestic saving in the process.) 

3) RBNZ have implemented more stringent capital adequacy rules, in particular in the ag. sector. They could do more with this ratio, but not specically just in ag.

4) Start using a variable LVR regime. (Re. the way Texas do things.) Set loose initially. Given the precedent set in item 3, also vary LVRs per asset class.

5) The effect of the high proprotion of fixed rates slowing the effect of monetary policy execution is well recognised. So, either phase out the use of fixed rates, or, specify and vary the maximum proportion of individual loans that can be taken on fixed rate terms.

6) Start specifying and varying a cash fractional reserve ratio.

As for the fuel price arguement, whether brought on by an internal NZD effect or external supply effect, don't forget Don Brash saw varying fuel excise duty as a useful way to help control inflation.

If RBNZ implemented some of these ratios the OCR could be further reduced, because it's not true that, 'there are no alternatives'. There are reasonable alternatives.


Cheers, Les.


What a cradle - song – Les !

Walter - what don't you understand?

Please Les, read my articles above. Make a comprehensive analysis, why our economy is in such a mess and stop your “Small Talks” going around the circle. Like I explained many times before - for a start the manufacturing sector NZMEA needs to take a firmer stand with our politicians.

Yes it will be interesting to watch the yield curve I would have thought.

Especially when I thought the banks are supposed to be securing longer-term sources of funding, which surely must still leave us vulnerable to overseas interest rates and hence the central bank, could to some degree not have the control it thinks it does.

Bollard denies political interference but some think otherwise....

SYDNEY (MarketWatch) -- The Reserve Bank of New Zealand's decision on Thursday to cut its key cash rate by half a percentage point to 2.5% in the wake of two major earthquakes has "the whiff of some political pressure," wrote economists at Bank of America Merrill Lynch after the decision. 

BoA/Merrill talking politicial pressure.

Maybe it's true that the RBNZ has a whiff, but it's a bit rich coming from those relying on TBTF as the ultimate political pressure drug addicted snort ever!

Another faulty Hiki-Hand-Grenade. Oops. Forgot to pull the pin.
Bernard. You would be better arguing the case for what should be done rather than arguing against the case for what was done. I would like to see explained how the OCR cut is going to help those in Christchurch. I dont understand how mortgage-stressed property investors in Auckland who have just had the noose loosened are going to help CHCH. I dont understand how savers who have just had their income slashed by 10% are going to spend to keeping the economy going. Guess there must be less savers than borrowers?

"The Comimg NZ Property Boom"

By Olly Newland

First published 1978

Updated 1981

Updated and re titled 2004 "The Racal Guide to Real Estate "

Updated 2006



What's change since 1978? Olly Newland was probably  35, and so was his  property buying cohort. Today they're all 30 odd years older . They don't have the time or the inclination to do it again; and those that followed them ~ the next generations of property buyers can't afford to. The age group that's going to take the financial flack for the property implosion that's coming, are those speculators between 30 and 40. They still had the where-with-all in +2000 to 'get in' by buying from those that were cashing-up ahead of them, and were out by 2008. But those coming up behind them haven't got the means, real or borrowed, to buy what they now 'own'.

Big Daddy - I hope, when Kiwis sold enough houses to each other - burning the property market, your understanding of varieties of Chinese languages are good enough.

Thats the point, I remember last year when everyone wanted to sell to foreigners, basically, if it made them money, PIs would want NZ to be a country of foreigners, its disgusting. Lets say for a second that year on year prices rise 5 - 10%, if you are Gen Y, it means that your children will probably NEVER be able to buy a house in their own country, ever, because wages don't go up by that much, and theres the data to prove that. "Well thats their own fault" I hear you say, but is it? If your average NZer is priced out of the market, it means that the average NZer is doomed to a life of serfdom. Gratz Olly, you really made this country a great place :)

Yes - switch off the brain or what's left and turn greedy -> welcome to China !

MK you pathetic little snotrag. Can't you see that it's your defeatist attitude and nothing else that is your enemy. I'd happily bet my last bottle of "(can't be bothered checking the cellar but insert something amazing)' that I could import 100 peasants from China with nothing but the clothes they wear and a spectacular work ethic, and unlimited enthusiasm that they all could be your landlord within five years. Useless moaning little git. Pffft to you.

Thats a very silly and naive comment to make. First it is degrogatory to those from China and secondly what you say is nonsense.

These so called imports as you call them, might very well become landlords, but the same could apply to any number of people who decide to borrow and become a "landlord"

All these peasants are doing is taking on debt, and there is nothing clever about that given the poor rate of return that property has.

Grrr...not very nice they’ve done this now as we are just about to pay off the mortgage on one of our houses. But good news for all the home owners.

 Anyway, we knew that the interest rate was going to come down more, but not like this....

Things are definitely getting a bit artificial these days, big developers going down, housing shortages (not the earthquake of course).

This kind of situation certainly don’t occur every 10 years.

Neither of us called this one small kev ;)

They will be talking like Big Daddy about something else in 10 years and it won't be property. At the height of the tulip bubble, you could buy a beautiful house on the river for a tulip. Thats how bubbles work, they do not last forever.

An OCR at 2.5% is stilll quite high compared with a number of other countries, seems ok as far as I can tell.  Quite a bit of hot air being expressed on this (but one shouldn't expect otherwise), it is a middle of the road approach and that is the sensible thing to do.

And those countries that have a lower "OCR' than us; where are their property markets? In free fall, or being held up against that. Japan has had 0% for 20+ years, and it's property just keeps on falling; the States has 0.5% and it's battling against property delfation; Dito the UK; Ireland: Portugal; Spain. etc And what are our rates doing? Falling....there's a clue in that. Our economy is in as bad, if not worse, state than other Western countries. Are we so blind as not to see? Bill Gross, and 'be in cash', is right!

You are right Muzza....as for comment of the day..I thought NZ just did have a massive crises, or does everyone think that a Earthquake in NZ second largest city as yesterdays news? Sure there will be a rebuild but it aint going to happen next week or next month but middle of next year, and ONCE that starts to impact inflation then OCR can go back up, but right now NO one really knows the impact of the earthquake and I have said this before ..ALL of NZ will feel the ripple effects of this and just cause you dont live in CHC does not mean it wont hit you in the pocket. And because  MOST NZ have a mortgage then they had to drop OCR for a period. (Oh if only we were all mortgage free like 90 percent of people on this blog)

 Muppet King | 10 Mar 11, 5:26pm  

"Lets say for a second that year on year (house) prices rise 5 - 10%, if you are Gen Y, it means that your children will probably NEVER be able to buy a house in their own country, ever, because wages don't go up by that much, and theres the data to prove that".

We pay for fish, meat, butter, cheese, timber, etc..  in NZ as it relates to the "international price" despite having an abundance of the stuff.  You'll never correct that side of the argument (trying to curtail house prices) until you effect either supply or demand.  Demand is driven by what all people (internationals incl) are prepared to pay for it, as is the case with the commodites listed above. So the answer (in terms of housing) is the supply side. If you want to further analyse why house prices continue to creep up in NZ, look at my previous post of 2pm to see how supply in NZ is being strangled by ultra socialists (the Devonport Brigade) that don't want development.  

Another way is that Gen Y leaves NZ to earn higher incomes. Sounds tough?, since 1988 I have lived 13 of 23 years in London earning 5 times what a Chartered Accountant would earn in NZ.. thats the way of the world. Would I have preferred to have lived in NZ?, yes, but at least at age 46 I can now afford to live here with assets paid off.  Our officials (both central and local Govt) can take alot of the blame for people having to leave due to persistent low wages. Note as an example to follow, John Key made his money overseas...encourage your children to stake thier claim overseas like him !.     JK

another commentator criticising the cut:

"It will only be a matter of time before the market starts to speculate on when the increases are going to come, because with 4 percent inflation and higher food and oil costs the argument to cut was flimsy anyway," said Derek Rankin of Rankin Treasury.


(from www.stuff.co.nz)

Matt in Auck says:  10 Mar 11, 5:36pm

"All I know is I don't want to be a mortgage slave"



One question, Matt - which do you think is worse - being a mortgage slave for 25 years and then being mortgage free, or being a rent slave for 25 years and then still being a rent slave?!!


Sure, everyone can pull out their spreadsheets about how much Matt can save by renting and invest it in other things over the 25 years.....  I've never met anyone that's done that for 25 years and been in a better position than someone who simply paid off their mortgage (excluding a few I know whose businesses metaphorically struck gold! but even they also owned property)


It also usually doesn't take 25 years...  the loan amount and payments get increasingly smaller in 'todays dollars', so you can usually pay it off quite quickly as the years progress....  rents usually keep pace with 'todays dollars'.....   don't be fooled by low inflation, 3% inflation still equates to a doubling of prices in about 24 years (or a halving of the value of money, depending which way you want to look at it).....

One of the objections to lower OCR is that people wont save, is this assumption based it evidence or self interest?, there are countires where interest rates have been low for ages but saving rate are better than NZ where historically interest rates have been high. Saving is not only related to interest rates only but to many other factors as well. I am not advocating lower rates per se but only trying to say that in general self interest motivates people to find the evidence they are looking for. Many have commented here previously that OCR is a blunt tool ,so why use it indiscrimiately? How would high OCR control petrol prices? High NZ dollar would help with consumption not production in NZ. Were we not complaining at one time that high dollar was attaracting hot money in NZ which left as interest payments overseas ?


Just a month or two ago Bernard and co were proposing all sorts of (IMO stupid) things to bring our currency down. Now they are worried about the OCR dropping the NZD and petrol prices going up. Can't have it both ways!!

"New Zealand is in a dangerous debt spiral"

Q:"If you were an unemployed plumber or construction worker in Auckland, would you rather help rebuild Christchurch or move straight to Queensland?"


Depends on the money I guess.

If you move to CHCH you'll struggle to get accomodation, plus there is always the danger that another EQ will occur.

Plus why would you want to move down there, the place is a mess.

essential reading for those interested in house prices:



Matt, I've read the article you posted.

(a) Agree alot of Aus property is in big bubble territory, particularly Brisbane where population flows north have people paying over the odds for sub standard property, so the article is relevant to Aus. There is clearly a lack of 'value for money' when looking at property in Bris, Aus $750k  (NZ$1m) for a basic 4 bed Queenslander.

(b) Having visited Spain every year for the last 16 years, thier problem was over supply, the entire country being one big half built building site, it had to come to an end, added to that a socialist government that was loose on putting money away for a rainy day.

(c) NZ suffers from a lack of supply (direct opposite to Spain) , 20,000 homes short in Akld, and likely to quickly go to 25,000 or 30,000 with people from Chch. Current Council charges for development contributions (DC's) when building often represent 15% or more of total project costs (a local super tax). Akld still has decent value for money, ie; its not 'notably' overheated but supply is short.

I don't think the article carries a powerful arguement when applied ot the current NZ market given the supply situation (shortage) deliberately implemented here by Council which cant be corrected in the short term.

I'd add, Councils have deliberately introduced thier super tax (DC) but I really wonder if any of them have a macroeconomic clue as to the consequenes, ie; I assume they are just being greedy to satisfy thier own financial requirments without understanding the medium & long term housing crisis (shortage) bearing down on them.

"a socialist government that was loose on putting money away for a rainy day."

A rainy day, or more like a cat 5 hurricane, brought on by right wing, 'free' market economic theory.

The US ran up massive debt under the Republicans, not exactly  socialist are they? Hang on, you could say  'free' market economics is socialism for the rich and capitalism for the poor.

South Paw - You sound upset, you've lost your cool.

I was talking about Socialst Spain. Where the construction industry over built to provide for expected demand accomodating northern european drift, where perdominantly German and English retirees go to live. Expected demand that did not materialise due to the recession.  The SOCIALIST Government in Spain did not see that coming, they did not adequately measure the risks associated with over construction, did not provide the regulatory oversight and controls and overspent public monies when they should have consolidated. With 2.5 Trillion Euro's in both public and private debt the SOCIALIST Spanish government still has 9 of 14 regions overspending thier public budgets when austerity measures are being called for.

I was not talking about the US, a completely different case, but if you want to then fill your boots, its a free world.

Your other post complaining about developers. I was simply pointing out the mechanism in which Councils detract from developers developing by way of financial penalties. That's a matter of fact and public record as to how thats done through the development contribution charges. I see the value in development. If you can't and want to curtail it, then again you are entitled to your opinion, but don't come complaining when your offspring can't afford housing.       


"I assume [councils] are just being greedy"

As opposed to developers who are acting on humanitarian grounds and are concerned only with the public good Just look at the beautifully designed, spacious concrete apartment blocks in Auckland City, the cookie cutter suburban sprawl and generic 'supacentas". Thanks to the selfless toil of developers Auckland has come so much closer to being declared a World Heritage area!

And to think some ingrates say 'developer' is a dirty word. Communists!

As long as people use the rate frop to reduce their debts, this has to be better for the country as a whole

anyone with money sitting in a bank account doesn't care about poultry interest returns,no debts,home ownership and total financial fluidity unless key turns into mugabe.

" poultry interest returns"  - eh?! We're talking about the OCR, not the KFC.

Updated with Westpac's comments that it thinks inflation might go above the RBNZ's forecasts.



To Vera and damage - I was not taking pot shots at people from other countries that come to New Zealand for a better life. I see nothing wrong with that at all and I am well aware that the work ethic that a lot of foreign people have is innumerably better than the work ethic that some other people have in this country. Foreigners contribution to our society is great and we live in a very culturally diverse country, which I see as a huge advantage. I was taking aim at the fact that because people in this country can hardly even afford to buy their own homes without taking on huge amounts of debt, real estate agents and PI's, would rather have the people of NZ as a minority, all for a few bucks. I think that is lame.

"I'm overhearing conversations from people seriously looking at property again now"

There goes my plan of offering 5-10% less RV for non renovated houses. This is just going to make the vendor more stubborn.

Would see this weekend how it goes in the Open homes. Also would be checking out a auction in browns bay

From my personal observation I have seen a slight increase in footfall in open homes last weekend.

A gentle reminder to everyone to avoid use of ugly language and personal attacks.

In the end it's not much fun.



Talking about ugly...wanna know why Bolly is on the wrong path...course you do....

 "As developed Western economies bounce along the zero lower bound (ZLB), few participants realize or acknowledge that ZIRP is an inescapable trap. When a heavily indebted nation pursues the ZLB to avoid painful restructuring within its debt markets (household, corporate, and/or government debt), the ZLB facilitates a pursuit of aggressive Keynesianism that only perpetuates the reliance on ZIRP. The only meaningful reduction of debt throughout this crisis has been the forced deleveraging of the household sector in the US through foreclosure. Total credit market debt has increased throughout the crisis by the transfer of private debt to the public balance sheet while running double-digit fiscal deficits. In fact, this is an explicit part of a central banker’s playbook that presupposes that net credit expansion is a necessary precondition for growth. However, the problem of over indebtedness that is ameliorated by ZIRP is only made worse the longer a sovereign stays at the ZLB – with ever greater consequences when short rates eventually (and inevitably) return to a normalized level"


thanks for the link Wolly....

It is counterintuitive to think that low interest rates are BAD for the economy and that higher interest rates can be GOOD.

BUT... the reality is that for the longer term prosperity... this is the case.

No worries Roelof...I doubt Bollard has the authority to counter the zirp demands coming from the bank bosses and the fools in the Beehive. Much easier to make up some BS about confidence.

The rules of the game demand the final cost for a zirp policy to be far worse than the opposite policy path....but the banks want it their way....so in the end you get to pay.

Wolly....    It is not even zero interest rates...  Just  the fact that each recession requires lower and lower interest rates,.... in order to generate growth thru credit expansion.

Those lower and lower interest rates are akin to a stronger and stronger "heroin fix" for a Debt junkie...!!

I saw an amazing chart...somewhere.... Showed the interest rates in USA since the late 1980s'...and also showed each recession/downturn.....( to crawl out of each recession required progressively lower interest rates.)

Bollard mentioned that  during the next cycle , the economy would be far more responsive to raising interest rates. ie. a small rise in interest rates will dampen growth.

Again , this is counterintuitive...  Sounds like it is a good thing...but in fact it is not. Rather, it  shows the level of dependence on debt....  and the fact that we are painting ourselves into a "debt corner".

The end game is 0% interest rates.... Japan is there, USA is there...  we are not far behind.

I suppose zero interest rates is the equivalent of a "drug overdose"....

cheers  Roelof


Yeah...I assumed you would know all that...

'Zirp' until post the election.

Then the tune will change.

Recession here for another ten years minimum if we are lucky.

Expect the RBNZ 'zirp policy' to return in 2014 and again in 2017!...we both know why.

Note to readers: Zirp stands for zero interest rate policy...but in truth it includes RB action that manipulates rates to be lower than they would otherwise be...for obvious reasons.