English says PM's 2009 comment that a credit rating downgrade would push rates up 1-2% was right at the time, but it's different now

English says PM's 2009 comment that a credit rating downgrade would push rates up 1-2% was right at the time, but it's different now

The Prime Minister's comment in 2009 that a credit rating downgrade would raise the government's borrowing costs and mortgage costs by 1-2% was right at the time, but does not apply today, Finance Minister Bill English says.

The government has come under critisism after credit ratings agencies Fitch and Standard & Poor's both downgraded the government's long-term foreign currency credit rating from AA+ to AA on Friday. English said the downgrade was due to the ratings agencies 'shifting the goalposts' for how they viewed countries with high amounts of foreign-owed debt.

The government has been in control-mode over what the downgrades meant for its economic plan, blaming the international environment - turmoil abounds in European and US financial markets - as the reason for the moves. The opposition Labour Party claims the downgrades indicated economic mismanagement from National, something PM Key and English refute. See Labour finance spokesman David Cunliffe's argument in this double-shot interview with Bernard Hickey on Friday.

Key and English had repeatedly used the prospect of a credit rating downgrade to dismiss any economic policy put forward by Labour, with Key in 2009 saying a downgrade would add one to two percentage points to the government's borrowing costs.

While opposition parties trawl through previous statements from Key and English as ammunition for the final week of Parliament sitting before rising for the November 26 election, English said over the weekend that the increase in borrowing costs would not be as much as Key had indicated in 2009.

New Zealand interest rates edged up about 5-10 basis points on Friday, with economists suggesting the rise should not be much more than that. See more here in our earlier articles on the Standard and Poor's downgrade and the Fitch downgrade in NZ's sovereign credit rating to AA from AA+.

Also see: Opinion: Bernard Hickey says the government can't just brush off the Double-Downgrade of NZ's sovereign credit rating as an accidental or irrelevant mistake.

Speaking on TVNZ's Q&A programme on Sunday, English said at the time, Key's comment would have been right as international wholesale money markets were still "quite brittle" following the collapse of US investment bank Lehman Brothers in late 2008 and subsequent credit crunch.

"We’d be better off without a downgrade, no doubt about that," English said on Q&A.

"In terms of how it flows through into interest rates, you’ve got pressures around the world that are bringing interest rates down, so the New Zealand government is paying less than it has in many decades for its debt on the one hand. On the other hand, the conventional wisdom is that the downgrade will tend to push our interest rates up. Now, on any given day, we don’t know where it will come out," English said.

The day before the downgrades, Treasury's Debt Management Office auctioned off NZ$1 billion worth of government bonds at near-record low rates. See more here in Alex Tarrant's article, Government raises record-equalling NZ$1 bln of debt as demand returns; 'Investors looking to diversify away from volatile Europe'; Paying 4.45% for 12 yr bond.

English said he did not expect the downgrades would add 1-2% to borrowing costs. 

"I think back in 2009 it would have. We were really under the test then. Now I think because of the progress that we’ve made, because the market sees us as having a credible path back to surplus and sound economic policy, there may be some upward pressure on rates, but bear in mind the interest rates currently are at a 45-year low," he said.

"Bear in mind the context here. Interest rates around the world are still headed down, and currently we’re paying the lowest interest rates on government debt that we have for many decades," English said.

Treasury forecast in 2009 that a ratings downgrade would increase all borrowing costs by 1.5%. See more here in this Beehive release.

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Politicians continue to make statements that are always right at the time, but wrong in hindisght.  A bit like economic forcasters, they really wouldn't have a clue.  It's just voodoo trying to control the economy with perception.  It is right at the time, lets see how it works out.  At least the metservice gave me a severe weather warning.

Alex - in the 3rd para I think you may have missed out 'damage' before 'control mode'.

The outdoor...had to trawl but there it was..."Bear in mind the context here. Interest rates around the world are still headed down, and currently we’re paying the lowest interest rates on government debt that we have for many decades," English said.

Billy Bob has repeated words to this effect with gathering momentum of late in the attempt to diconnect Public debt from any exterior overview of our position......it seems chanting this mantra has not been effective with ratings agencies...I doubt it to be effective with lenders accordingly.

This is a question of where govt revenue (theft) is heading. If you think govt revenue is set to remain static or rise while the govt cuts away the wasteful state splurge, then National will drag the economy away from fiscal deficit. Just don't expect this to be a speedy process.

If however you believe Kiwi peasants will spend less, leading to revenue declines, higher unemployment costs and greater govt borrowing costs....then you had better prepare for some real shite.

The hope is that food export returns will remain healthy! ...while oil/fuel import costs will not drive inflation higher...that the property splurge in chch will take place and hide the economic cracks.

The expectation on the part of the ratings agencies is that the govt will abruptly halt its spin and BS ....and start to chop away the state waste. Fat chance of that happening before the election. Then 2014 will emerge in the distance. "Must stay in power"....that is the mantra in the Beehive.

 "Must stay in power"

Well  Wolly with oppostions performace...lack of depth from the bench...failure to defend or score points...I'd say that  mantra could be said in a laughing whisper and still eventuate.

Funny ...you'd think the bribe cubboard being bare would create more of a level playing field instead of highlighting just how unwanted Phill is.

Phill has probably thought pride and arrogance  will lead to the Nat's undoing....never stopping to consider that may very well be his own.

 

It's a matter of time C....the Kiwi memory fades quickly...look at how many failed to remember the 87 market scams and rorts!....the socialists will be returned by an electorate sick of National's arrogance, hurt by endless recession and forgetful of Labours uselessness. It is just a matter of time.

Best to prepare for that twist. It will come with an open door immigration policy aimed at boosting Labour's support base...it will bring a return to fiscal deficits, policy failure and deeper debts. Likely as not it will all come hidden inside another socialist property bubble, well supported by the ever cheerful parasitic banks.

Funny you should say that Wolly...as I have it on good info that a real crackdown by I.A. is taking place as we speak to dislodge a certain demographic historically known as imported Labour votes.

So maybe the Nat's agree with you and have become proactive. 

On to this.......well supported by the ever cheerful parasitic banks....I think you have that just right....it's win win for them...but surely must reflect successive Govt's slow-witted uptake on just how much policy the Banking system is influencing.....

The free market doesn't want regulation ...the only way to turn the tables on the status quos is through regulation

................such a perplexing problem

It will not change C. Just plan on a continuation of same and to stay in quality property in the mean time. When 2020 rolls round the replacements for goofy et al will romp in and they will get advice from the banks to go on a bender..to bubble away....

The great immigration floor of brainless unskilled voting fodder will pick up in 2021 and that's when you need to be into the 'also ran property' to be collecting the rents and waiting for the bubble peak to sell. There will be no capital gains tax because the Labour govt fatheads will be doing the same...nothing changes!!! 

Caught that Q+A program last night... now understand why Walter is so upset by it all... Thought I was just tuned to the wrong channels whilst it all went on around me, turns out 'that's all there is'. Mr English reading a script, Mr Douglas and Mr Anderton 'sharing a pint' and three others simply repeating what they'd heard, one of them probably paid to do so... 

Very cosy.

too much BS from Cunliffe, wheres the dosh from Cullens huge supluses gone anyway ?   - sorry O lefty economists but a lot of kiwis are giving JK the reins for now

 " Key hits highs in polling ladder "

   

 

If anything remotely good happens they'll claim it was their management, as soon as something bad happens all of a sudden it's outside forces that they can't control.