By David Hargreaves
Well, gobsmacked I said I would be if the Reserve Bank cut interest rates, and, gobsmacked I am.
I would just point to the final paragraph of my opinion article earlier this week (which you may or may not have realised was a bit of cunning backside protection), in which I said that if the RBNZ did cut this week - less than two months after acknowledging that cuts might realistically be on the table - then it would be an indication that the economy is weakening rather more quickly than has been widely believed.
And so this seems to be the case, with the RBNZ expressing strong concern about the falling dairy prices and likely impact. And this of course just a day after Fonterra foreshadowed "hundreds" of jobs were likely to go in its head office and support functions.
I thought that the RBNZ would want to wait till closer to the October 1 start date for the measures by itself and the Government against the Auckland house market. The fact it hasn't suggests it believes it simply can't wait. Also, it clearly wants the NZ dollar down significantly, right now.
The currency markets do appear to have been caught out by the RBNZ move. Immediately prior to the release of the central bank's decision the Kiwi dollar was restlessly pushing against the US72c mark - giving the firm impression that a substantial rise was just moments away if no rate move was forthcoming. But of course there was one and the dollar straight away lost nearly a cent and a half in value. What they call a kick to the solar plexus.
What this does now mean is that the RBNZ has its fingers, toes and probably a few other things crossed that the wild child Auckland house market doesn't go mad between now and when the new measures take effect. The latest figures from the REINZ today would suggest that insanity is currently reigning.
The only thing I would say in the direction of people clambering into the Auckland market is, the RBNZ has clearly indicated today that our economy is slowing up quickly. Be. Careful.
The "rockstar" economy description - based as it was, let's face it on super high dairy prices and the necessary rebuild of our second largest city - is going to be seen in future years as unfortunate. Our rockstar has quickly passed from the magazine good looks, thrusting, vibrant, youthful stage to the too-many late nights, putting on weight, and looking generally jaded stage.
Let's see what happens. I think the Auckland house market is likely to lose steam from here as people view the economy - and such things as job security - in a less positive light than they have recently.
But, equally, you can't rule out the possibility that the Auckland market will keep rising regardless as everyone loses touch with reality. If that happens we will have the worst kind of two-speed economy.
It has happened before. In the mid 1980s we had a soaring sharemarket and yet a real economy that was dying on its feet as the then Labour Government undertook all manner of heavy duty structural reforms.
That all ended very badly on or about October 20, 1987 (the sharemarket crashed).
The clear warnings from today's decision about the slowing economy should be heeded. Otherwise there could be trouble. Big trouble.
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