Finance Minister Grant Robertson says NZ won't require unconventional monetary policy in the foreseeable future

Finance Minister Grant Robertson has dismissed the idea New Zealand has any need for unconventional monetary policy “in the foreseeable future.”

This comes after a Reserve Bank report detailed five options it sees as available, should the Official Cash Rate (OCR) ever need to be cut to zero. 

Robertson says he sees no need for any unconventional monetary policy in the “foreseeable future.”

“They haven’t been part of New Zealand’s monetary policy to this point, but this is one of the obligations that the [Reserve] Bank has, to look at all of the tools that are around," says Robertson.

He says New Zealand won’t be at a point where the Reserve Bank needs to implement QE in the “immediate future.”

The options outlined by the Reserve Bank include reducing the OCR into negative territory – as was done by the Bank of Japan – and engaging in quantitative easing (QE).

This was a path taken by the US Federal Reserve in 2008, whereby it bought an enormous volume of bonds and other financial assets in a bid to stimulate the economy.

At 1.75%, the OCR is the lowest it has been. The Reserve Bank is expecting it to be raised mid to late next year.

Assistant Reserve Bank Governor John McDermott told Bloomberg whilst there’s “no imminent prospect” of using any of the five measures, “the probability of needing them at this point in the cycle is higher than it ever was in history” and “it would be silly of us not to be ready just in case.”

McDermott also told Bloomberg that if the Reserve Bank was required to take any of these extreme steps, the Government might give the central bank more capital or indemnify it against any risk of losses or ramp up fiscal policy.

“In that kind of world, I think coordination would be important,” McDermott said.

Asked about potentially ramping up fiscal policy - for example, more Government spending - Robertson says that’s all hypothetical in New Zealand’s case. But he does note that for the countries that have gone down the QE path, fiscal policy has been used alongside it to help stimulate the economy.

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47 Comments

I see financial repression on the horizon. The Auckland housing market's going down along with Sydney Melbourne Vancouver. Inflation is ticking up with petrol prices going up and the NZD going down. Could we see a day when CPI inflation is above 3% and the OCR stays at historical lows? It would be done in the name of financial stability and protecting FHBs.

Inflation is the wildcard, if it does take off the reserve bank with have to raise rates (perhaps quickly) and that will soon make the affordable un-affordable as far as debt goes. The rest of the OECD especially Australia would be strongly effected also. Grant Robinson could be eating his words in time for the next election, time will tell but he basically has to say these things or he might unset the apple cart.

I think in the context of real estate & increasing interest rates. Increased financing costs are not the biggest problem. The problem is the repricing of assets, caused by a change of interest rates. Increased debt financing costs only has a minor effect on net equity growth (from my calculations anyway). Asset price inflation or deflation has a massive effect on net equity growth. The two effects, asset repricing and changes to the cost of debt, are self reinforcing with respect to interest rate changes. Both on the way up and on the way down.

Agreed but I think financing costs are the CAUSE of asset price change.
Also increased finance costs mean less disposable income which leads to some businesses going bust, that means staff layoffs, these people then don't earn any income to spend on other businesses that, as a result, also go bust... also self-reinforcing

Possibly, but I think investors also compare the assets return (ie rental return) to the risk free rate of return. Whatever the mechanism we're arguing in the same direction.

What risk-free rate of return are you referring to?

If the OCR goes up I would kind of expect bank deposit rates to go up too. I know it's more complicated than that with bank reserves coming from places other than the central bank & domestic savers. You've got iceLIBOR rates and whatnot (incidentaly, they're going up lately).

The risk free rate of return is the yield for govt bonds. The 5 year rate is about 2.4%, the 10y rate about 2.8%. Yields in Auckland are about an average of 3% or so. That’s the gross yield. So the average rental in Auckland is paying as a net yield substantially less than the risk free rate of return, which implies the property market is seen as having less risk than the risk free rate of return. The net rental yield on Auckland property is, adjusted for the risk free rate of return, less than zero. Haha, good luck with that, it’s an absolute dog

Wrong Bobster - capital gains on Auckland houses are the risk free rate of return...didn't you hear?

Oh, silly me

Well you do have to account for inflation. If the risk free rate is 2.8 but inflation is 1.8 then the return is 1%. But asset prices shouldn’t be affected by inflation. So even without gambling on capital gains, housing still can be attractive.

Actually, the 3 or 6 month NZ treasury yield should probably be risk free rate. I suppose the point on yield is, are you getting adequately comoensated for the risk of holding the asset. At current rental yields, your net yield in Auckland is zero of less so I think the answer is...nah

That's correct but I was referring to term deposit rates, or bank interest rates. At the end of the day that's the risk free rate of return as far as most garden variety property investors are concerned.

The CPI is a joke, for example they include cellphone cases in their basket of goods. I'd suggest most NZ consumers get these cases included with their phones or buy through TradeMe or AliExpress.

Real inflation is much higher than the CPI so many NZ savers are already experiencing the equivalent of negative interest rates. I'd be pleased if someone could debunk what I just said.

The monetary tools won't do much. You can't cure a private debt crisis with more private debt. QE doesn't do much for the real economy. Fiscal policy will be the only truly helpful strategy. Slowly more and more central bankers seem to be gently hinting at the need for stronger automatic stabilisers that just kick in and are immune from hysteria about increasing public debt. A universal job guarantee at a decent basic wage would be the ideal version of this.

Is mis allocating capital/subsidising really a way to cure a private debt crisis though?

Strong automatic stabilisers are what keep your economy from completely imploding Great Depression style and that is why central bankers increasingly go on about them. Hardly a mis-allocation. Yes government can spend badly. But it can also spend wisely. Corporations and private individuals are also quite good at spending unwisely and mis-allocating resources. And a job guarantee for involuntary unemployment caused by a financial crash (not of the people's making usually) is a very wise use of money in that it prevents the long term negative effects of unemployment. Once demand and confidence is restored, government can pull back as workers return to the higher paying private sector. If the private sector is investing and expanding then the deficit can reduce.

I may be missing the full picture here but for the government to spend it needs to either tax or borrow. Tax is taken from successful functioning individuals/businesses which will restrict them in future. Borrowing is taxing our future money without addressing the root cause.
Wouldn’t it be best to focus on sane credit/money creation policy rather than try to deal with the negative consequences that they currently create. Address the cause, not the symptom otherwise we’ll be having the same conversation in around 10 years?

The "Monetary Tool" is at it again... Give me a break.

https://www.marketwatch.com/story/tax-breaks-for-home-mortgages-to-sink-...

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It all seems slightly surreal that at a time when our economy is nominally going great guns with solid growth and low unemployment that the minister and RB are having a public discussion about what desperate measures to employ to keep the economy on life support? I am skeptical about how strong the underlying economy really is as I think much of that growth comes from this giant credit bubble, but I didn’t think that was a widely held view. This discussion and the obsession of some with keeping interest rates at bottom lest there be Armageddon do not indicate to me a great deal of confidence.

Bernanke quote from January 10, 2008 "The Federal Reserve is not currently forecasting a recession" It is logical scripting our Finance Minister can't see one in the "foreseeable" future either.

Yeah, it’s just a bizarre conversation....

Wonder what they know about the state of the economy and affairs, that they are not able to tell in open terms. If National had come back to power would this have happened ? Labour seems to be caught in many developing adverse situations, which they might not have anticipated. Now they have to fire fight. Key's timing to quit looks all the more of a calculated, wise move now.

totally - why even raise the subject - 1000's of unfilled jobs across all levels from unskilled labour to high end IT, engineering , medical - almost every major Kiwi Industry expanding and becoming billion dollar enterprises

Wages are starting to rise significantly - 55,000 homecare workers last year many getting 20% rises - 5000 MH and addictions in July - and we know that teachers, nurses, police and other MOH/MSD/Corrections/ roles will follow in the next two years - probably against a static housing market

It seems that Grant Robertson - like WP wants to project that the whole world and NZ is in doom and gloom status in order that his very very average handling of the economy will look like sensible management!

It is a bit concerning that both Minister and RB have felt a need to publicize this this week. Albeit Westpac's parallel universe of flat house pricing is still the biggest warning of the week.

Odd they are even considering this.The evidence as to the efficacy of such policies over seas is limited at best. With asset values at astronomical prices everywhere you look and debt reaching new heights, one could argue they have done more harm than good...

I think Grant should Grant the wishes of Westpac Chief Exec...and drop all Inflation on houses for 30 years....plus.

I do not wish to be negative,

I do not want to rely on Inflation...like some I could name.

I just want a steady Market, not a Gamblers Den and Balloon Shop.(Bubble and Squeak..on this fair site)...all sold,... sorry trying to be sold.. with the same mantra..." Look at me..I got....Potential"

We can all "want" or "not want" whatever, it doesn't really matter, the market will do what it will.

So when they open up their toolbox all they will have are band-aids and band-aids wont fix the hemorrhaging caused by a severed head

LETS JUST CLARIFY ................... QUANTITATIVE EASING IS NOT HIS CALL .

The Reserve Bank is an independant body ( like the courts/ judiciary ) and for very good reason it must never to be subject to political manipulation

Well have you not heard, the government are infiltrating the RBNZ with some of their own "experts", 3 out of 7 I believe.

We depositors know we are stuffed long term. We're never the priority.

That's exactly what I thought. Poor CoL govt still learning the ropes. Maybe he should be made to apologize for these comments, his undermining the RBNZ. Same offense as standing in a plane when seat belt lights are on haha. America have Trump, we have this new govt ministers. Who needs clowns anymore!!!

Wait till the next quarter results come in, inflation will be well below target and GDP taking a massive hit with farming woes. Some sort of QE measures will be necessary. Grant has no idea.

When the pressure comes on, you can bet that the rbnz will be buying up loads of govt debt, just like the ECB is doing now, because no one else wants to buy that junk. Whoever ploughs money into govt bonds deserves to lose their shirt down the track. They’ll keep ramping up the debt as always without any intention of paying it back.

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WOW 2 weeks after the MPS, when the RBNZ said the risks are evenly balanced between interest rate rises and cuts for 2019, they come up with a scenario where the OCR is cut to zero!
Yes, I understand, it's in case the economy takes a sharp turn for the worse but still, they have not just thought about it, they have spent time studying a zero OCR, and have even published their report. For anything to happen in real life, it must first seem possible in our minds... and that part is done.

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How can Mr Orr be happy to go for %10 returns when he runs Kiwi saver but somehow supports zero return for depositors

The reality is demographics are against them, high house prices along with market returns for rent have pushed a generation of Kiwis into penury. As the baby boomers move on the generations underneath stuck with impossible house prices and rents that don't reflect earnings are going to vote for change.

ZIRP is a sop to banks. it will maintain asset prices to the detriment of the young, eventually the cogs will turn.

If you put your money in a NZ bank, you get near zero returns, because you get have near zero risk. You want 10% returns you put it somewhere that there is a higher return because there is a higher risk.

https://www.express.co.uk/finance/retirement/964085/retirement-mortgages...

Old age....remedy.....First home buyers...

Last home..sellers.

We are all OK..Stop griping, ..this is a funny fact...I missed it Friday....But it is still Friday in UK.....etc.

We are all invincible....Keep borrowing..keep spending...all "Normal"

https://www.zerohedge.com/news/2018-05-25/new-financial-report-finds-eco...

OH..and Americans should "Brace" themselves...

https://www.marketwatch.com/story/he-ran-up-a-million-dollars-in-student...

I am gob...smacked. Americans..is grating...again.

Oh.... and Chinese whispers...Labouring in our midst.,,is coming Home to roost...perhaps.

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12058818

Accusations of donations from China govt - liked organisations are a threat - regardless of what the US, China, National party leaders or others say.