David Hargreaves says that as the Reserve Bank prepares for its last interest rate review of the year next month its credibility is facing a massive test

Agreed David - I think 100bs strikes the right balance now (given the huge lag between the next meeting) and hope to hell the RBNZ gets some good news that the CPI inflation January data finally shows a slowing.

If the RBNZ attempt to undo the damage that they (in conjunction with this govt) have done, this govt will likely look at "restructuring" the RBNZ :)

Wouldn't like to work in senior management there at the moment!

"People have to believe that inflation will go down"

Quite right. But they don't.

And as long as the RBNZ chases inflation higher with a lagging OCR rise, what else can we expect business of all kind to do except bake that 'known' factor of future rises into today's prices? What will any of us be doing with our price lists today? Not dropping them, that's for sure.

I just don't see how this stops until the OCR is above the CPI numbers and the OCR ceiling is back where it should be - above our CPI heads.

Whichever way you look at it, next year doesn't look like it will be a lot of fun

I can look at many angles and see a lot of fun.

Btw the current housing market is so badly balanced that even this can happen:

People "give up" and downsize/abandon-ship => that might result in a lot of money going back to where it can be spent, driving inflation even more up (think of rents for example). That's pretty fun, not very likely, but possible.

There are many more possible scenarios more likely to happen, like just an epic crush of the housing market.

What I mean is that the parameters ar so numerous that we are close to chaos theory.

ergo:

FUN

To be honest, everyone's credibilities gone from RBNZ, Govt, economists, 'independent' property commentators.

A day late, $50b short.

The RBNZ only have themselves to blame for this mess - with their path of least regrets.

People will only have themselves to blame if they believe RBNZ has 'got this' and are not asking for 7%+ wage rises

With half my mortgage coming off fixed term next July, my spreadsheets will be in action tonight to answer the question - pay down for another 9 months at the existing low rate then wear the 7%+ rates from next year, or break early and fix higher for longer?

I wonder how many people with $700,000 mortgages are going to be making similar calculations before the next round of hikes?

What’s the counter factual? Increasing interest rates has an inflationary aspect to it, as JFoe says. It’s unusual times, maybe the impact is more inflationary than usual. Maybe an optimal OCR might have been around 2-2.5? 

Scandalous thought, I realise 

We are way behind the curve, they are talking home mortgage rates in the USA of 10%. The OCR needs to be higher than inflation not lower than inflation or at least until it has the desired effect. Fun times over the next six months. There is still the idea in my mind that they are deliberately trying to crash the current financial system so they can introduce a CBDC that will suddenly "Save us all".

Everything has been going up for 6 months! (Not house lately)

So the RB blinked big time last OCR review. They should have raised OCR by 100 last time.

They've missed it. Inflation is here for years. The OCR can't beat the inflation figure without destruction occuring to the economy. They have to wait for the global economy to increase its productivity. We're along for the ride. 

got to laugh at any suggestion the Reserve bank still has credentials left  :) 

I would like  to see the anticipated effect of 100bps. My concern is that the demise of the FLP may precipitate a much greater increase in the cost of borrowing on the high street. This would massively weaponise the effect of a solid 100bps rise.

I would prefer to see a scheduled RBNZ meeting mid December. I would want a 75bps in November, let the FLP dry up and then consider a further 25 or even 50 bps based on the behaviour of the banks.

Why force a Hail Mary OCR strategy when a more step wise considered approach is eminently do-able. Dare I say it but the optics of behaving in a flexible manner to suit the changing situation may also play out favourably in the eye of the public.

What credentials?

Fed should be happy that atleast someone feels that they have some credibility, hence at stake otherwise they lost the plot long time back with their manipulated narrative of TRANSITORY INFLATION.

If they seriously believed in it and were not manipulating than their inteligence and expertise is at stake as all data and happening were suggesting otherwise.

Yes,  now it is -  if and how they ( RBNZ) can redeem themself and justify their existence.

We have a spending problem, not an interest rate problem.  You can keep increasing the interest rate until a certian point in which you realize that doing the same thing over and over again, and expecting a different result is the definition of insanity.

Maybe the gov't should reconsider their approach and instead cut back on their spending needlessly on things they've went overboard with.  That's the solution.  But of course, it's always easier to spend money than to save it.  That's why you have a political science major running the Finance of this country LOL

Enjoy everyone.

-7

Real house price growth over the past 40 years. New Zealand really is special.

https://twitter.com/WallStreetSilv/status/1582556167682723840?s=20&t=Vp…

Government borrowing and money printing drive inflation, these are the 2 ways money is added to the system.

The rbnz can only truly fight inflation by making government bonds too expensive for the government to continue the huge deficit spending binge.

Unfortunately the productive economy will suffer first. 

So long spent fretting soft landings we overlooked the fact that inflation was still actually climbing.

They haven't had credibility for the past 20 years. Financial stability? If financial shocks and house prices are a risk to the economy then that horse bolted a long time ago.

Debt leveraged economic growth, debt leveraged wealth creation and a debt based monetary system was never going to end well. 

If inflation is too much money and we've been "making money" hand over first for 2 decades, where's all the money?

Should be exciting times ahead, particularly when the entitled ones don't get their inflation adjusted pay rises when unemployment starts picking up steam. This is a giant credit bubble and it has only just started deflating.

There will be strikes, maybe even riots, yes, even here, not just in France. Anger. Despair. Sadness.

For the record they never had it under control.  The gap between the OCR and CPI grew to a negative 5.9% in March 2022 while they were busy doing 0.25% hikes from 0.25% to 1.00%.  Only then did they understand that this was not transitory inflation.  They, like other CBs, found the closest global event to blame their slow action on (the Russian invasion of Ukraine) and then stepped up the interest rate increases.  They cannot afford to show panic (ie inter meeting hike - that won't happen, or start increasing the pace - 75bps or 100bps hikes) otherwise markets will understand the RBNZ does not believe inflation is going to turn around.  Perhaps inflation won't turn around anytime soon but the economy certainly will. 

First, the Federal Reserve told us there was no inflation.

Then, they told us not to worry when inflation became undeniable because it was only “transitory.”

Then, when it became apparent that it was not merely transitory, they told us not to worry because inflation is actually a good thing.

Then, when it became obvious that inflation was not good, they told us not to worry because they had it under control.

SPOILER ALERT: They are no where near having inflation under control and neither are the RBNZ, who are merely along for the ride.....