http://xtramsn.co.nz/business/0,,5007-3553985,00.html
Today Alan Bollard put the OCR up from 5.75% to 6.0% citing inflation concerns and hinted more rises were to come.
If you continue to stifle inflation by messing around with interest rates and not leave things up to market forces, sometime something has to give.
Any other views anyone?
Cheers
Jeff<<<If you continue to stifle inflation by messing around with interest rates and not leave things up to market forces, sometime something has to give.>>>>
Market forces are not perfect. What every government wants is to have an economomy that grows at a steady low rate.
To achieve this, you may need to tinker with interest rates. Thats one of the tools available to drive the economy.
If we left things to market forces then we would have heaps of people buying homes, then eventually we will hit a limit and growth will stop and move to a depression, then to a boom.
By tinkering with inteest rates, hopefully we can achieve steady growth in the economy that benefits all.
I do agree Yack, soft landing not hard landing.
The problem with NZ is one of the highest rates in the Western world (NZ 6.0%; Oz 5.25%; US 1.25%)and inflation largely affected by oil prices.
With increased interest rates comes increased NZ dollar. A high dollar makes exports less competitive. Lower exports hinders growth. Low growth stalls the economy then what happens?
I guess interest rates have to come down to kickstart the economy again.
NZ rates have increased by 1.0% in less than a year. Household debt is already at all time highs and is now under more pressure.
As I said sometime something has to give
Cheers
Jeff<<<<As I said sometime something has to give>>>>
I agree that something has to give. In my opinion its gotta be House prices. We are at historical Highs. House affordability is worse than when interest rates were at 17%. Property yields are too low. Household debt is too high.
For the benefit of the economy and the people in it, its best to reduce house prices and reduce household debt. Thats why interest rates must go up. These must be at manageable long term levels. They are heated at the moment.
If you were driving the economy – what would you do?
Sounds like the same discussion as held over Australian interest rate rises over the last year…..
Cheers,
Aceyducey
In theory, there is no difference between theory and practice. But, in practice, there is.– Jan L.A. van de Snepscheut
Hi guys
ibuycashflow i agree with your comments, as i’ve mentioned before i don’t have a huge amount of confidence in the NZ Reserve Bank. Sure the country is enjoying great prosperity but the economy doesn’t need to be holted. It seems that as soon as people make some money over here he thinks he has to slow it down. I can’t see the need to lift rates it will only hurt the country. Time for a new government ???
I think MichaelR made some interesting comments on another post when i was having a similiar winge.Aceyducey the difference is the NZRB lifts rates. The RBA just talks about it.
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Perhaps they should tinker with the oil prices instead of interest rates. That way I could go back to diesel heating instead of chopping firewood.
Cheers
JeffWhat every government wants is to have an economomy that grows at a steady low rateI disagree,
What every government wants is to have an economy that gets them re-elected!
Rod.
Unfortunately the current Reserve Bank Governor [Bollard] is being dictated too by the Government [Cullen] – my understanding, based on discussions with closely associated representatives – and Bollard himself, is Bollard was chosen for this role because he is willing to let the government set the rules.
Traditionally the RB maintains more of an independent role to ensure political agendas do not come into play.
It would now appear that the OCR [official cash rate] will rise another 50 basis points before the end of this year – starting with 25 points in October, possibly sooner.
I agree with both arguments on this post, the RB does have to maintain a somewhat conservative approach to ensuring the inflation rate is controled.
However, house prices being at historical highs does not mean the market has peaked. There are a number of economic and awareness factors in play at this time, which have not been present in the past.
The issue the New Zealand economy is facing which can quickly result in downward trends on a wider economic scale than the real estate market, is the government is stubbornly ignoring New Zealand’s “competitiveness” in terms of world rankings, interest rates being one example as highlighted. Other examples being telecommunications and corporate tax policy.
Combined with the rising dollar [NZD] which has an adverse affect on much needed exports, and foreign investment, these factors can contribute to greater problems for the economy than a rate of inflation that breaches 3 percent.
From a foreign investors perspective, we are keeping a close eye on the Reserve Banks and governments fiscal decisions over the coming months. If higher interest rates combined with an appreciating NZD continue, we may direct investment elsewhere. Although in the medium to long term, New Zealand is still considered a very lucrative location.
— Michael
Hi Michael
thanks for your thoughts on this topic, i really appreciate your contribution to the forum. You bring a how new expertise to the discussion.
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
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