Time for the RBNZ to display courage of their convictions

Time for the RBNZ to display courage of their convictions

By Roger J Kerr

Intestinal fortitude is what the RBNZ and its Governor need right now so that they are not swayed and overly influenced by the short-term/very changeable views of market economists who are calling for a “cup of tea” pause on removing the emergency monetary stimulus.

The RBNZ will struggle to justify a material change to their 2011 economic forecast (from what they said in June) that warrants a fundamental change to their well sign-posted path of returning monetary settings to “normal”.

In the Monetary Policy Statement next Thursday Governor Alan Bollard has an important PR challenge to educate the media and public that a 0.25% increase in the OCR from 3.00% to 3.25% will have absolutely no impact on the economy, mortgage interest rates and spending/borrowing/investing decisions in the economy.

The official interest rates have been out of step (well below) the true cost of money for many months now.

All the banks have been paying 4.50% to 5.00% for their funding from retail depositors and offshore wholesale debt issues. A higher OCR to 3.25%, of even 4.50%, makes not one scrap of difference to where the real price of money (interest rates) has been trading between investors and borrowers for a long time already.

If Mr Bollard fails to clearly explain this unique situation he is allowing and fostering miss-information and misunderstanding in the marketplace. It is part of his job spec to communicate economic and financial market realities to the masses.

He has to succinctly explain to all and sundry that lifting the OCR to 3.25% is not a monetary policy tightening in any shape or form.

In my view, Alan Bollard would cause more confusion by taking a pause on the OCR, than sticking to his guns and original plan of removing the no longer needed monetary stimulus.

We saw in Australia last week how wrong the economists and moneymarkets can be on reading the strength of the economy. I am not saying the NZ economy will expand by 1.2% in the June quarter (we forecast +0.5%), however our economic recovery is not stalling as the economists and moneymarket pricing is suggesting.

The long-term interest rates bottomed last week, the shorter term one to three year rates have seen their lows as well.


 * Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com


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The higher the cost of money, the less able businesses are able to borrow to expand and grow or even stay in business.  If businesses don't grow or fail, then what hope is there that employment will rise.  If employment doesn't rise then the government must borrow more money to pay for the people who are unemployed.  To pay for the borrowings, the Govt must then raise taxes.  OK, I hope you get the picture now Roger. 

Or hey, we can keep putting small business out of business, and just keep giant corporations.  We could continue to destroy whats left of our manufacturing sector, and outsource any remaining jobs overseas.   Try thinking outside the box next time you write Roger.   Doing the same old thing time after time, and what do you get?

That is uncalled for anonymous and very small minded at this time.

Best of luck with your travails Chris.

Likewise. I may be 'on the other side' of property discussion on this site, Chris_J, but I'd much prefer that it had stayed just a robust discussion, here. No one foresaw or deserved what has happened in Christchurch, and I too hope for the best outcome for you, and all in the city.

Amen to that Nicholas.

Roger.............If Mr Bollard fails to clearly explain this unique situation he is allowing and fostering miss-information and misunderstanding in the marketplace. It is part of his job spec to communicate economic and financial market realities to the masses.I

Er Roger..........er halllllo! Roger....I am in shock that this is news to you...!

The RBNZ has been in the service of The Ministry of Misinformation for the last three years minimum.

Where the hell have you been....?

Bollard...says repeatedly..."We need to get the NZD down in the interests of recovery"

Bollard...does repeatedly...proactive policy to keep the NZD at artificial highs.


Combine that with the almost public admission that he does not understand the permutations of financial instruments that lead the World to this point.....!

Roger did you watch the Q+A with Guyon....for you a must...!

Bollard has to reassure the passengers aft.

Full steam ahead for the White Star Line.

His best was the illusional allusion to "the dollars lost would stretch to the sun and halfway back.

Charring aside, you'd think a pile of that many greenbacks would be visible. Hard to misplace.

They didn't exist, of course. Wishful thinking inflated property values, they were 'borrowed against', and the 'equity' was 'invested'. All levered off fiat reserves.

He could have just said "they didn't ever exist".

But if you explain the smoke and mirrors to the audience, they become disillusioned, and want their money back.

So to speak.

PowderdownK.....nicely put ,and I am firmly in the camp...."they didn't ever exist"

In Bollard's case always.....interpret my posts with extreme cynicism.  

Roger: these are trying times for everyone, the test is brutal and it is dificult to keep the head above the  circumstances... we will see.

Roger - you seem like a clever bloke. ChCh needs cash to rebuild and in regard to public infrastructure, would it not be an ideal circumstance to use public credit to fund the work? Methinks it'd not be inflationary as the cash issued would be backed by the production of replacement infrastructure.

Tell me why it's not a good idea?

Anyone, even you Bernard?

Cheers, Les


Les - you could be the new Bob Semple.

I can see your autobiography now - "Semple on a Wheelie-Bin".

Not the same ring to it, but hey......all the good titles is goneded.

Youre quite right, though.

Ha, nice one:


Looking at that, I kinda think the soldier bit of me would over-rule the agricultural engineer bit. Although I like the idea of four machine guns - advocacy work would be so much easier!

Cheers, Les. 

Most of what needs to be said has been said above, the last two hikes were a mistake - we said so on each occasion - rates up here, held down elsewhere means returns to export activity falls - smoke, mirrors and hope is all that is left. 

Gareth Morgan's comments re SCF are spot on.


From the recent OECD Report "Bird's-Eye View of OECD Housing Markets":

55. "Another concern is about the ability of monetary policy to thwart the development of a housing bubble without causing widespread damage to the rest of the economy. In a house price boom, prices increase strongly – often at double digit rates – and expectations of future prices are similarly upbeat. Under these conditions, large policy rate hikes would be necessary to cool housing markets. High interest rates would crowd out sound and socially useful investments (Kohn, 2006)...........Devising an appropriate monetary policy response to asset price developments under these conditions is not easy."








Pity so few central bankers have any clue about this. Glenn Stevens and Tony Richards from the Aussie Fed are exceptional on this subject; as was our own Don Brash (with Owen McShane's assistance) way back in the 1990's. I can't understand why Bollard hasn't carried forward their good sense on this issue.


Greenspan and Bernancke would be well served by a defense along the lines that "the urban planners made me do it". If only.

Cut the rates, UUUUP goes property prices again, while the productive business sector remains starved of investment. Hike the rates, and listen to the screams from the employment-providing businesses trapped in the cleft stick, not to mention the floating-mortgage first home buyer.

Roger you sound like a  broken record ,clearly you have made it a personal mission to advocate for higher OCR, I do not believe this is for the good of ordinary citizens. How did the high interest help the country a few years ago?  oh,yes foreign money flew in and left with interest, the home owners (not PI) and business would suffer again. The high OCR did not control the property madness ,in the case of NZ,it seems to have made no  difference.Admittedly I am not an expert in economics or business but I can not see how on earth population would benefit by paying more to live in their homes and for doing business. Are you rationalizing  your own interest ?

In Economics the landscape is ever changing. Today we woke up to know that Mrs Gillard is Aus PM. As soon as it was announced talk about the Super Proffits Tax surfaced like a cork that has been held under the water. That by itself is going to influence NZs exports with it's main trading partner so much that the OCR will be a minor event. Yes. the imposing of such Tax will bring the Aussie down to the mid 0.80s area against the USD and back to the low 1.20s area against the Kiwi. That by itself will contain any other rises in the Australian OCR for at least a year, and in the case of NZ the OCR will not go above 3.5% tops. The Super ProfitsTax is designed to contain Inflation in Australia and shield the consummer from higher OCR wich would choke the Housing Sector and because they are NZs main trading partener they are also the main drivers of inflation in NZ.... I think that Mr Bollard's low Kiwi is at big risk if he keeps on hiking the OCR. Worst case scenario would be the Super Profits Tax in AU plus another 50 bpts in NZ, that will move the AUD NZD crossing to 1.07, hardly any export- led- recovery there... a double-dip ?