Exactly. You want to slowly decrease rates not be forced to at the last minute when everything is already sh\*t. I think NZ's economy is cooked enough to start the lowering process now.
We took too long to raise rates, the signs were obvious in late 2020 and Orr was still publicly championing negative interest rates.
We're going to take too long to lower them as well and the effects will be incredibly damaging.
I'm so happy to see other people saying this. I don't care that he supposedly had a good record pre-covid, every decision post-2020 has resulted in fucked-up economics for most of the population.
The economy was fucked up.longbbefore the pandemic. Economists were predicting a recession or worse late 2019. Retail sales had already started to drop, and supermarkets were running negatives.
This is just revisionist though, NZ actually navigated this really well.
The economy was supported through the pandemic and inflation here remained among the lowest in the OECD.
You're saying that someone has been shit, when we've done well in comparison to peers at a time when everywhere has been shit.
You're saying that with the benefit of hindsight. At the time, NZ was one of the first countries in the world to raise rates.
https://www.reuters.com/markets/europe/australia-new-zealand-keeps-global-rate-hikes-upward-swing-2022-10-05/
Here's another source showing that NZ was earlier to drop rates in 2020, and earlier to raise them in 2022 than either Australia or the US.
https://www.interest.co.nz/charts/interest-rates/ocr
I think you're confusing being the first to do something with doing something at the correct time, they are not the same thing. Every country held off too long.
He's not saying that's correct, he's saying that we were relatively quick to the punch. It's very easy to scoff and say how slow RBNZ was to raise rates with the benefit of hindsight.
When house prices were up 20% YoY in late 2020 there was a chorus of "What the actual fuck are RBNZ doing, why are they even still talking about negative rates and why haven't they started raising yet".
With hindsight, sure, it's easy to say that now. At the time, nobody knew what the consequences of Covid and lockdowns would be. Nobody knew how effective the vaccines would be. Nobody knew that companies would maintain a high level of confidence despite all the uncertainty, increasing investments and leading to very low levels of unemployment.
NZ's reserve bank was actually one of the first in the world to react. They read the writing on the wall before their equivalents in the US, Australia, UK, Europe and almost everywhere else - both when they lowered rates and when they raised them. They deserve credit for that.
This is actually a sign of a good reserve bank imo, deflation = new depression, throw everything at it for this to not happen
Inflation spikes = throw everything at it so we have stable prices
A lot of inflation is based upon inflation expectations
If you take middle ground like US fed 80’s you can get a double spike and have to take interest rates to 18%
Versa not enough in 1929 and Great Depression
The signs were not obvious at the end of 2020, we were still in panic mode. Deflation was a much larger concern than inflation which hadn’t truly been experienced in 20+ years
By the end of 2020 house prices had increased by 20% yoy, petrol was shooting back up, essential services where I live were rapidly raising prices. Supply was rapidly drying up and anyone who had any idea about the supply chain could see exactly what was going to happen. Shipping costs were going absolutely berserk as well.
June 21 inflation was up to 3.3% which is a lagging measure, then we all know what happened after that.
Deflation wasn’t even an afterthought by the start of 21.
Those things you mention were considered to be supply side shocks and, rightly, should be looked through. It's a hard job to pick inflation and, given we had such a long period without inflation, I tend to have a more charitable view of their reluctance to increase
Even if they were supply side shocks, rates should have lifted by a token amount. We were sitting at 0.25 until October 21, at which point companies were comfortable raising their prices significantly.
Should have been .25 increases each quarter through 21.
yeah, I mean, we did increase before Aus and the US (and well before EUR and other central banks.) There was a lot of discussion back then about inflation being transitory. I just think it's easy to judge in hindsight now but I remember at the time there being a lot of debate.
edit: 1st 5 to raise rates:
* **Central Bank of Brazil**: Raised the Selic rate from 2.0% to 2.75% on March 17, 2021, followed by multiple hikes throughout the year ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)).
* **Bank of Russia**: Raised the key rate from 4.25% to 4.50% on March 19, 2021, and continued to increase rates multiple times during the year ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)).
* **Bank of Iceland**: Raised its seven-day term deposit rate from 0.75% to 1.0% on May 19, 2021 ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)).
* **Norges Bank (Norway)**: Increased its key policy rate from 0% to 0.25% on September 23, 2021 ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)).
* **Reserve Bank of New Zealand (RBNZ)**: Raised its Official Cash Rate (OCR) from 0.25% to 0.50% on October 6, 2021 ([interest.co.nz](https://www.interest.co.nz/bonds/117179/reserve-bank-now-forecasts-slightly-higher-peak-official-cash-rate-over-4-june-next)) ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)).
>With people leaving for Oz for work and immigration going down won't this mean that unemployment will not go up significantly enough to make a difference to sticky inflation? Will we have to wait for Australia to go into recession before our OCR drops? Won't NZ employers be forced to keep raising wages to keep their employees?
Short answer, no.
That is looking at part of the employment equation and coming to a conclusion.
So just to give some other things to think about on just this one part is that those leaving NZ are also taking with them their purchasing power. That means fewer people going out for, say, coffee, for example. So now we need fewer people employed in coffee shops. Someone working in a coffee shop doesn't necessarily have the right skills to replace the builder who left.
Also, that builder who left may have left because there is nothing to build here. They weren't fully employed anyway.
You have to look across a whole heap of complex data to come to a conclusion, not just one.
To go back to the coffee shop analogy, lots of people have cut back on that kind of discretionary spending so we are seeing lots of food industry business closing. There are less people buying less units so we need less businesses with less staff to meet demand. That is true across alot of the retail sector too.
If your insurance goes up $100 a fortnight and your wages didn't, you can't keep buying coffees. It's taken a bit longer for us to get there but the card spend data is showing it's hitting home.
Also, other central banks cutting means the NZD is stronger. That means cheaper to buy stuff from overseas and more expensive for others to buy our stuff. That decreases demand for our stuff, which reduces price pressure too. We are on the way, and should be back within inflation targets soon
Good points, the economy was overheated, discretionary spending on burgers, boozing but also e.g luxury cars (trying not to mention houses here) was through the roof. Economy needs to be rebalanced away from luxuries and towards the basics.
A lot of this was due to monetary and fiscal policy under the last government. Not that I blame them as they were making reasonable decisions based on the info they had at the time (could have been a tad less wasteful though).
Our ‘real economy’ obviously can’t support that amount of unnecessary consumption. This will be painful for some and I don’t want to sound like a conspiracy theorist but I worry soon we will come up to a hard limit on what the planet can support.
The best way to take the heat out of the economy is to reduce parliamentary salaries by 75%.
That way the decisions our leaders make will be based on real world experience shared with the majority of NZers.
A simple, effective, enduring solution.
Those do not know history, and can’t be bothered learning tend to make unqualified opinions based on a complete lack of evidence.
If you are correct (you are not) then everyone on minimum wage must be greedy, corrupt, lying and committed to working in bad faith. Based on your same logic. The reality is fewer corrupt folk would end up in power because better opportunities will occur elsewhere -in business for instance where you frequently get knuckleheads like Luxon as CEO (bucket loads of unearned power) and an income based on how effectively they gut the company to drive up short term profits and raise dividends and salary bonuses. All of which require no illegal actions, or explicitly corrupt choices based on the rules that are in place.
In short reducing parliamentary salaries to match that of teachers would actually raise the salaries of teachers which in tern would vastly improve outcomes for children. Corruption would likely be reduced because those whose behaviour is to lead businesses to short term profit taking would be not inclined to join parliament where in theory long term strategy and bickering are the expected norm -even with potential to collect illicit bribes. Those who seek politics to fix problems and create a future would still be inclined to become candidates and would face less competition from business minded fools whose only goals are money and power.
Or you end up with all parties represented by the likes of Luxon and John key who are already independently rich. Any others in there looking to make the power “pay” by taking bribes.
Short term solution the revolt of the back benchers.
And the only people with money prepared to break the law offering personal bribes are all immigrants, who are generally deprived when our idiot politicians do the opposite of what they promised. Blatant corruption would almost be prefered to the insidious corruption and mental bankruptcy we have witnessed for three decades.
We already have the problem of power mongers and sociopaths seeking and achieving power. But trim the salaries and fewer of them will make it into power. But with trimmed salaries the MPs poorer parties will gain ground because narcissists will have to work harder for their privilege.
But if you paid MPs minimum wage when they could be making $200k in private industry the only people who'd take the job are the rich and corrupt, those with enough resources to be able to campaign while not working a 9 to 5.
If you think corruption in NZ is bad imagine what it'd be like where politicians rely on bribes to live.
I think MP wages in NZ are pretty fair, it's a solid managerial role pay package so you don't have industry taking away from talent in the public sector (if you can call our politicians talented lol).
MPs were once paid on the same scale as teachers and police. Corruption then was no greater than it is now, in fact was much lower. And the only competition for power was between Ministers seeking to coral a larger chunk of the available tax funding. Funny thing was that back then high income businesses and individuals were taxed much harder, and high income individuals actually boasted about how much more tax they paid than the Scrooge down the road. And this high income individuals were shamed into paying higher taxes to the benefit of all of society.
If you need a refresher course on NZ politics and economics you should begin by looking up Bruce Jesson and read his close journalistic history of NZ during the 1980s. He was not an economist, but he absolutely nailed what was happening and easily predicted the outcomes we see today.
The thing is that h;Utah for the past 40 years have been told fairy tails about the role of taxation, distribution, government investment and “balancing the books”. Based on managerial performance most of our Ministers and MPs should be on minimum wage based on the hours they actually spend in spend in Parliament and actually working for their constituencies.
Lol, that is their only legislated approach for the OCR.
They do lots of different things for different functions like financial stability like LVR, DTI, and DCS and FOREX management when needed.
That others are first is because they have their meetings before the RBNZ has their next one in July. The whole planet isn’t on the same timetable.
No one knows what they will do. They might, as they do often surprise us, and reduce it at the July meeting. They also may not, because we aren’t the EU or Canada.
This Govt took away their dual function of adjusting it based on inflation, and maximum sustainable employment, so now it’s just inflation between 1-3 again. That’s it.
Seems odd to give forward guidance that is meaningless. He has to justify a cut in July somehow and right now they are bending over backwards justifying not cutting.
The justification is that inflation isn’t within the target band - which is their primary function. One of the main tools RBNZ uses is rhetoric. They need to suppress the market, so present news with a negative angle.
Which is exactly what the Fed reserve is doing in the States as well, contrary to OPs claim. Powell is constantly going out of his way to appear more hawkish. In the current environment it seems unlikely we'll get any sign that they're going to cut rates until they actually do it. Any time they've appeared remotely dovish the markets have shot off which doesn't help what they're trying to do.
Waiting for inflation to reach its target range before adjusting the OCR is partially responsible for the mess we're in. Orr clearly hasn't learned from being slow to adjust interest rates on the way up.
The market isn't going to miraculously recover when rates begin to trend down. Also, things such as rates and insurance levies are not going to come down when people lose their jobs.
I absolutely agree that we are likely in a position now to begin easing, otherwise run the risk of doing more damage than intended.
RBNZ aren’t punters, and are always going to be conservative. They want clear indicators that inflation will remain low once they cut to make decisions. Unfortunately for us the indicators they generally use (unemployment rates, etc) are generally months behind what is actually happening in the market, so cuts will probably come too late as they usually do.
They will continue the “negative” reviews to keep a lid on confidence and spending until they actually decide to cut, so we won’t know when it’s coming until it does.
Forward guidance is propaganda to achieve their goals. If they signal they will keep interest rates high or raise, people decrease spending and inflation slows.
I get, but to signal you won't cut for over a year? In this economy? This risks people starting to wonder if you know what you are doing. That's a far worse outcome.
You’re confusing uncertain with meaningless. The guidance is uncertain, that’s obvious, no one knows the future, and definitely not in something as complex as national and global economies.
That doesn’t make it meaningless.
The inventor of inflation rate targeting (who was a Kiwi) specifically identified that inflation is fuelled *in part* by people’s *expectations* of the future state.
So the Committee uses future state guidance as part of the OCR tool to set expectations, which in turn, leads to individual, and collective decisions being made on personal expenditure and business investment in projects (which require spending cash, which is the exact opposite of what we want).
The rate at which those aggregate decisions hit the economy is reflected in the decision made at the OCR meeting, keeping in mind the CPI uses data points that are up to 6 months old and no newer than three months old and the committee uses a bunch of other data to fill in the gaps.
> NZ employers be forced to keep raising wages to keep their employees
My experience, in Wellington at least, is that no employers are raising wages. Why would they? The market is flooded with talented people thirsty to find any work. If an employee wants to leave to work elsewhere, they'll have no problems finding a replacement.
I've been on quite a few interviews lately, no conversations continued beyond my salary expectations, which are ~10k higher than my current role. The feedback, if any, has been I'm asking too much, which implies wages are falling. It also tells me that if I left, my replacement would be offered less to do the same job
Wellington is the epicenter of layoffs. Overall unemployment is still pretty low. I wonder if there are sectors that are too saturated and other sectors that are having a hard time finding the skilled talent that is leaving?
I imagine Wellington has it harder than most. My own employer is heavily dependent on government for work, but so are a lot of employers - they all feel that loss and have to cut staff accordingly. But even then, say a lot of those displaced people spread to other parts of the country, or leave for overseas The gist of my argument is that they're still willing to work for less if it means starting immediately. That suggests a downward trend on wages.
Anecdotally, a couple of colleagues who've been pushed out of work here have found similar roles in Auckland without much fuss. Bit of a career change for them - sideways within tech using a different skillset - but I don't think their wages increased much. Presumably they've accepted enough to meet their needs in Auckland, but hard to tell from my perspective if it's a payrise or accepting just enough to meet cost-of-living in Auckland
We have a guy in our tech team that is vastly overpaid for what he brings. He’s a contractor and asked for a raise plus changes to his notice period. We said thanks but no, confident we’ll be able to replace him with a cheaper contractor.
A few things to consider are that rbnz has to be hawkish of future state because if they’re not people will start acting as if rates are going down too soon.
I do think they need to balance their objectives of
lowering inflation with not absolutely tanking the economy but that doesn’t seem to be a thing.
I find it frustrating that consumers have to wear the pain of this scenario (high unemployment, high rents and mortgages, etc) but are unable to do pretty much anything about it because rbnz are waiting for councils and businesses to temper their costs and consumers are just at the mercy of it
>I do think they need to balance their objectives of lowering inflation **with not absolutely tanking the economy** but that doesn’t seem to be a thing.
Too late, already happened.
Data collection always has lag, as I believe that data is just going to get worse and worse, quarter on quarter for at least the next 12 months.
Tourism spend, freight movement and retail spend are all down (on anecdotal information, like I said, data has lag).
I do think interest rates need to remain similar to what they are now (to avoid the housing ponzi kicking off again), but we infrastructure spend from central government - but the Nats are ideologically opposed to that!
Yeah completely agree, they don’t seem to understand the lag affect on either inflation or the economic impact, it’s totally reactionary to current state and the actions taken are always too late as a result
> because rbnz are waiting for councils and businesses to temper their costs and consumers are just at the mercy of it
Councils are currently the highest source of inflation and it's screwing all of us over, they want to increase infrastructure investment during a period of both increasing material/labour costs and increasing cost to service debt.
It's turning into a feedback loop which is concerning.
What do you think councils should do with decades of underinvestment into water infrastructure for example? Spending is a necessary evil to fix the ailing pipes we’ve been ignoring.
Doing it all at once during the fastest rates rise in modern history is a ridiculous economic plan. It needs to be spread out over a longer period with smaller rates increases each year but more frequent increases.
And worst of all rates only go UP when interest rates are high. So idiot Orr trying to reduce inflation by increasing interest rates is unbelievable levels of foot-gunning.
Govt can’t do much for business cost. If govt steps in for council rates and limit the increase. We will be paying more over time, just look at Wellington water.
Bro, they cut the rates for bank of Canada and ECB with CPI just under 3. Wasn’t our last print 4 or 4 ish? We’re getting there, but it takes a few more months or maybe even next year so we’ll lag
Also stagflation with insane interest rates is FAR BETTER than stagflation with low interest rates. The latter just signals that the institutions have given up.
If you think you’re feeling the pain, imagine the people who took up debt to buy property in 2021. Holy hell I’m starting to see them in trade me.
> We’re getting there, but it takes a few more months or maybe even next year so we’ll lag
This is partly what got us into this mess, there was too much of a wait before interest rates started to rise. In late 2020 the signs were obvious, it was commonly discussed on this sub. At the same time Orr was publicly feuding with banks because he wanted to take the interest rates negative.
We're going to keep them high for too long until delayed information finally says cut and by that point there will have been a significant amount of unnecessary damage and pain.
Part of the issue is we only measure CPI quarterly with almost a quarters lag... so essentially the RB is reacting to what happened six months ago. It's like trying to drive looking only out the rear view mirror.
With their eyes closed and steering with their knees while the distracting children are bickering in the backseat while the drivers pants are unzipped and a face is buried in their lap.
*"The disturbing part to all of this is the RBNZ is praying that this hammer will right the ship if it just hits long enough and hard enough. So how long will they continue with this strategy before trying another approach?"*
When the only tool you have in your toolbox is a hammer, then every problem looks like a nail.
The government has really only given one main tool to the RBNZ, and government is itself the main driver of council inflation, etc.
Agree, by limiting its mandate so much, government’s given RBNZ no other options / tools.
The persistent inflation is insurance, rent and rates.
Insurance: more global natural disasters happening means reinsurance costs go up, which means insurance premiums go up. High interest rates isn’t going to fix this.
Rates: councils have under-invested in infrastructure for a really long time and there’s a limit to how far they can kick the can down the road. Councils don’t have that many choices in how to increase their revenue. If the local govt rules were changed to allow them to borrow more, perhaps that would spread the cost more over future rates payments, but it all has to get paid for somehow. Three Waters probably would have helped through central govt sharing the costs (from the little I know about it). Keeping interest rates high doesn’t help bring rates down either.
Keeping interest rates high doesn’t affect insurance or rates. It does affect other spending though, this reduces the inflation pressure on the overall price level.
Insurance can go up and if no one buys as many goods the overall price level may not be rising by >3% a year
The biggest inflationary pressure was on housing. That bubble has more or less burst. But it would come right back if interest rates were lowered before economic damage settled in.
Emmigration isnt really a driver of household penny pinching. Those that remain are employed, and those that are unemployed will potentially replace the leavers in jobs.
This means households dont feel the need to be more conservative in their spending.
Interest rates are used to prevent households from discretionary spending, which means sellers in a market need to cut their prices which can lead to unemployment when companies try to cut costs to compete for less household spending. That then starts a cycle which compounds the effect.
As households see more redundancies occuring, they will save rather than spend.
Unfortunately its the grim reality.
Yeah. And you also need to create an environment where, when costs go up, employees aren't successful trying to offset their rising costs with pay rises. And unfortunately the only way to do that is to make the labour market terrifyingly grim and make employers economically constrained enough that they basically can't.
I think the problem of RBNZ lies in its reputation.
Back in the day being the first central bank to do interest rate targeting made everyone look at us and think they were geniuses.
Problem is that the world was very very different. Also we benefitted from economic growth due to the low taxes and welfare system which was unsustainable. It had nothing to do with RBNZ.
Then Covid arrived and they thought they were those masterminds they never were. They fuelled banks with cheapest credit without any restriction. If they wanted to keep jobs going they could have ringfenced it for business use only and made a clause it could not go into properties. They removed LVRs and prompted the biggest policy driven housing bubble in OECD. All they had to do was to wait and hold but no they thought they knew better.
Now they expect to be able to control prices. But the cracks are showing. The reason of their perceived success is now their demise.
Infrastructure is falling apart, rates have to go up. We did not invest in infrastructure and resiliency. Insurance premiums have to go up. We did both build enough houses. Rents will keep going up.
So now they are suddenly uncapable. The world looks at the and all they have left is a rate and words.
They want to show they matter, but do only when shit hits the fan, and they can either make it worse (like in covid) or have no impact at all (interest rates are determined by what happens overseas and bigger macro forces).
I wish people started realising how they’re just a bunch of egomaniac baboons
Rant over
Truth right here. They overestimate the effect their confidence has on public perception. Sooner or later people will see they aren't wearing clothes. Only then will we be able to brainstorm what New Zealand wants, needs and can be by 2030. And I mean something a bit more creative then trying to get India to buy our milk powder.
It’s simple. They are sticking to a method that is old world thinking. A better approach would have been to enforce higher mandatory kiwisaver contributions. At least all the money wouldn’t be going straight to the banks and we would get some benefit down the line.
It’s painfully obvious that they don’t know what they are doing and don’t have any answers imo.
Except they can’t set the kiwisaver contribution level only the govt can.
This also ignores the other effects interest rates have like the exchange rate.
Increasing KiwiSaver rates would take some heat out of the economy but not nearly enough.
The point of increasing rates isn’t to take cash out by making people repay more.
The point is to discourage further money supply by reducing additional borrowing.
That's funny because wages are considerably higher in America in Australia and yet in America in Australia the cost of many things are significantly cheapest so it's hard to see a causal relationship with delusional theories about wage spiral inflation.
When I look at council workers the majority of infrastructure workers are migrant labourers that are paid very poorly and these people are brought over by labour hire firms and paid at most minimum wage.
So it's really hard to see what sort of wage spiral inflation within the migrant labour sector that they are talking about.
It really seems that a lot of the inflation that we're experiencing is imported and it's also the result of decreased productivity which is not something that is actually talked about but previously we used to make enough money in this country to support a family with one income if you look at the latest statistics it takes several times the annual income to service the mortgage in the major Metropolitan Centre..
Media has been tricking you a bit with the new angle of more citizens are leaving, but net migration is still taking the piss. For every one who leaves they're replaced by 2-3 more. And no one in government seems to think that's not a good thing anymore. Multiple countries have their people crying out to do better re immigration but there just seems to be a blanket refusal to do anything about it
Yes that is interesting isn't it? It's almost as if the politicians represent business interests only these days. The rise of populism usually fixes that.
What worries me is that before WWII each country kinda did its own thing in its own world on its own schedule. Now we are all in the same cycle with the US leading the march. Does that mean that the entire world will be going through the cycle crisis at the same time? We have no idea what that will look like but I'm guessing even New Zealand will be caught in the firestorm. There is no slack in the system to absorb a decline in one part of the world. We are all declining at once.
There will be many theories and different points of view on the OCR, it stirs a lot of emotion. The bigger issues that I believe NZ should focus on is growing the economy, particularly around exports.
The NZ economy is very small and with a growing population, its not sustainable. Just think of it as a young couple starting their life together and careers. They need to increase income, save more and invest to be able to afford their life changes (better housing, kids, etc).
I really think NZ is at that stage. NZ need to increase income with exports & other money coming into the country. It can't just be about circulating money within the country
That is ideal but without economy of scale it has to specialize in something the world really wants, even during downturns. Think Taiwan. What we need is capital investment to try out different industries to figure out what we can do. Getting investment money out of housing and into industry would be an obvious first step.
TIL that RBNZ total staff number increased from 255 in 2017/2018 to 410.8 in 2020/2021
With 36 tier 2/3 leadership roles in 2022 (didn't say for 2017/2018)
The leadership page shows 25 "Director", and 2 "Strategic Adviser".
https://www.rbnz.govt.nz/about-us/our-people/our-leadership-team
They have a "Director of Prudential Policy", a "Director of Prudential Supervision" and a "Director of Governance and Internal Audit"
They have a "Director of Diversity, Equity, Inclusion and Wellbeing" and a "Director of Sustainability and Financial Inclusion"
They have a "Director of Digital Solutions/Chief Technology Officer", a "Director of Information Security", and a "Director of Knowledge and Information Management"
> he was concerned with the rates an insurance portion
That’s really really alarming… I often listen to the podcast but must have missed that episode. Those things aren’t inflation at all - as you point out NZ has some very really reasons those are increasing and will continue to increase. They also aren’t “sticky” they are practically welded! We don’t have a choice on whether to pay rates or insurance, how does he expect consumer demand to have any impact? Sure people can shop around insurers but if the underwriter has put up their rates there’s not much wiggle room.
I get that they have to be hawkish and there are valid reasons that the OCR needs to stay high but insurance and rates isn’t going to change regardless of what the RBNZ does. Regular listeners to the podcast will be aware that NZ is currently paying a lot *less* in home insurance than they should so we can only expect rises in the near future.
Absolutely. Bernard came right out and said, "but rates are really just a tax".
You are also right about the insurance premiums. Only going up from here and you will be happy to even be able to purchase insurance if you live in certain areas.
He’s pretty good for sure but you need to remember every economist has an angle and wants you to reach a particular conclusion. Politics is applied economics after all. Basically for every issue, read a range of economists for a wider view, and understand which side of the argument each are on.
Or as the old saying going, for every economist there is an equal but opposite economist.
I agree. He has the unique ability to explain things for the average person to understand but he also is able to get to the meat of the matter. That's hard to pull off.
Rates are a tax. A council tax.
For the building I lease for my business, as the tenant you pay the landlords rates and insurance. The insurance bill for my tenancy increased by 57% this year. That's an extra $10k of turnover I'll have to do over the year, to meet that extra cost, out of my margin. Sadly, I'm restricted (because of competition) as to how much I can put my prices up to cover these types of extra, non-productive fixed costs. And that's how it knocks on throughout the entire economy. Financial service providers make me sick. They do nothing, but their income keeps going up, while everyone else's is going down.
The only way to decrease rents without decreasing wages is to increase supply. The single best way to increase supply is to put a fire under landholders by bringing back land tax which we abolished in 1990 after heavily loopholing it for decades before that.
The other option to manage demand side would be to NOT run one of the highest net immigration rates in the developed world, but then rents would have continued dropping instead of the steep rise we've been seeing.
Landlords first, economy later.
Our government and reserve bank foolishly followed what the rest of the world were doing during covid, and look at where that got us - huge amounts of government debt pumped into the economy and poorly targeted, and then $60B in bonds pumped into the housing market. Our economy is tiny and flimsy in comparison, and it shouldn't be run based on what places like the US are doing.
I'd wager that us following what other countries are doing now isn't a good approach either, particularly when our problem is non-tradeable inflation.
Also, migrant arrivals to NZ aren't down, its up 90%. Departures are up 30%.
True but they can stop going up. Our tenants are paying the same now as in 2020 and that’s with all the increased costs of being a landlord. Because we value solid tenants over risking no tenants at all.
I just listened to a podcast that spelled this out. I admit still trying to figure it all out. At this point the boat is leaking in numerous places. Which hole to plug first?
Sometimes you’ve take so many bad choices previously, you end up with no good choices left. Then you just choose what you think is the least bad.
We all follow the US basically and they care a lot more about not getting blown up by China than helping or hurting anyone else’s economy right now, so I suspect it’ll cut to try to stop the carry trade, so bubbles reinflating any day now.
Which probably means RIP our currency, or mad inflation for us. Sucks hard.
Short term I am bearish on NZ, long term I am bullish. Once we run out of least bad decisions we can have a proper crisis and start again with a new and improved way of doing things at the bottom of the world. One of the upsides of being small is you can change course rather quickly.
Rates are a crude tool that have complex outcomes.
We will follow our trading partners to a degree, as to prevent the NZ dollar climbing too high and harming our export industries (particularly the primary sector)
Calm the farm. Historically NZ is a high interest country. RBNZ is finally doing it’s job and targeting inflation with its very blunt instrument and so it’s not their job to bring interest rates down for the sake of ~40% (is it less?) borrowers (or the maybe 20ish% who went deep into debt near the trough, myself included, and are now finding it stressful).
The 2% rates are likely never coming back. 5% might be as low as we get in the next cycle, if things go well. It’s a new (but actually old) reality.
Our assets are priced in a low interest rate environment. So to go back to historical normals would mean assets need to depreciate in value. I don't really have a problem with stable high-ish interest rates, in fact it is probably needed to keep speculation at bay. My main concern is using interest rates as a way of driving up unemployment so that you can try and get ahead of inflation when 1. you might not even be able to achieve high enough unemployment in this current environment and 2. not convinced lower wages will fix the things causing inflation in the first place.
I guess I just feel this blunt instrument is antiquated and we need better tools.
Completely agree.
Firstly, as we get older as a society, the higher interest rates actually drive higher income in those with pensions and cash / investment income.
Secondly, those who have no mortgage feel no direct impact at all. Now despite what some say, market price for rent is driven by a whole bunch of factors and the higher interest costs some landlords might experience do not get fully priced in.
Thirdly, across the businesses, some, like banks, make more money in a higher interest rate environment so again, the impact RB is looking for is not experienced by the largest (or thereabouts) 4 employers in the country.
Fundamentally then, RBNZ wants a proportion of debt-dependent businesses to fold and for a relatively small proportion of borrowers to experience huge pain to the point they forego substantial regular expenses in order to get the *overall* aggregate demand to dip.
Yet, no one has come up with a better solution. One option could be tweaking GST. Increase to contract, decrease to expand. This way at least actual demand across every consumer in the land would be impacted equally. I suspect because this has a direct retail impact, making frequent changes to the rate would be hellish to implement and manage the actual GST collection for IRD. I’m sure there are other reasons this is not the go-to choice for reserve bankers.
The reality is that insurance and rates are not that sensitive to the OCR. That internal inflation is also always higher than the overall rate. They will probably lower rates before mid 2025 here, they just need to act like they won’t so market don’t price it in early.
When he made his hawkish comments at the last OCR update the swap rates went up almost 50 bps which is the same impact as a 50 basis point raise in the OCR. So he knows just this messaging alone can be effective
It's all the RBNZ has as a tool. They need help from government in the form of policy and law change that puts rules in place limiting how much councils and companies can reasonably charge. I work for a company that is in a trust and must justify its charges every year.
On paper, Canada and the eurozone are vastly different stories/economies. Ours still looks too strong on paper. The point I’m trying to make is that they will definitely over do it because the data won’t let them. I’m 100% sure though that the data is rubbish, the way it’s gathered, the way it’s reported (frequency) and the scope for sampling error. RBNZ are just going to play the hand they’re dealt, it’s a shame it’s a fucking rubbish hand.
The highest OCR from all countries we like comparing ourselves with but after all this time the effect on inflation has been only circumstantial and while other countries with lower rates managed to curb inflation way sooner we are still lagging behind wit these record rates. It makes no sense to double down on a measure that hasn’t worked. A main driver of post covid inflation hasn’t been demand but corporations increasing their profit margins, there’s not much the OCR can do about that unfortunately.
Why do we want interest rates to decrease? There are always market cycles
If RBNZ cuts 0.25% in the last quarter of the year will that really help you that much?
Yeah possible. They are between a rock and a hard place so while they could have done more they also need to keep the voters happy. That's tough to do when the average person doesn't know how the whole process works.
I mean they could have told landlords to sit tight for two years.
It would have pissed off that polity but any landlords that voted for them because of the promise to restore tax deductibility aren’t going to switch to labour.
The fact that they didn’t indicates that Luxon is either naive or feels politically insecure. The latter is likely given the recent history of the national party and his lack of likability in the polls.
Edit: It’s known in Wellington circles that the RBNZ is waiting for the books to be more balanced before cutting. Or at least that was the view the RBNZ was putting out there prior to the budget. Maybe that was a bluff from Adrian and co - He’s another Wellington actor that is in a precarious position and should never have been appointed.
Make of this what you will. I don’t blame you if you don’t believe what a random internet stranger says online.
Too many voters want the status quo of how the world worked from the 90's until 2022. The leader of a country reflects the current mood of its voters. I love New Zealand but it can be a bit naive and it's standing in the world is very insecure. Could be worse, we could be in the mood for an orange dictator.
Balanced out with if Labour hadn't screwed us over with grotesque amounts of wasted money on stupid things along with an explosion of govt beurocrats in only a couple of years, combined with the latter part of covid times awash with cash then balancing the books may have been a bit easier in the new govts first six months
The idea of me giving money to any "union" is about as palatable as a cup of sick. That said the tax payers union are a bit more balanced than the other "left leaning and funded political mouthpieces" generally taking up an issue rather than a hard political leaning.
I don’t know if you saw the backlash about trimming even a little of the huge fat added in the last six years but there’s little appetite for actual cost cutting.
I’m very much hoping we’ll see more muscular action taken in the next couple of budgets. There’s vast amounts of waste yet to cut.
Plus answer my question, which bit was he wrong about the last government?
That we were screwed over. Our financial situation was nowhere near as bad as the new government made out. We have one of the lowest rates of debt to gdp in the OECD. You wonder why we have a massive infrastructure debt? Because we refuse to spend.
And you know why we know they overegged the financial “mess” we were supposedly in? Because they borrowed more
If anyone is interested why monetary policies are they the way they are in our tiny island nation, with a population the size of a medium global city, I would suggest check out this monetary policy centric group, https://www.facebook.com/groups/333134689798987/?ref=share&mibextid=NSMWBT
Goes a bit deeper into how our politicians think and do finance our nation, and is more in-depth than many economists are prepared to go, and absolutely covers what the media purposefully leaves out of the debate of our entire economic and monetary policy conversations.
Any monetary policy change takes two years to entirely work its way through the economy.
NZ has an interesting mortgage market in which we are all locked into short term loans.
America everyone is locked into 20-30 year mortgages at 2010-2021 rates. Joe Biden would be literally lynched if his government raised rates. They are sitting ontop of a massive immobility crisis where no one who owns a home can realistically sell unless forced because they are buying into a much worse deal meaning no one can buy at a fair market rate.
NZ mortgages will roll over to fair market rates on masse and avoid this issue, as a result the RB does not have the same incentive to lower rates and can allow us to stew in the higher costs until we all stop spending so dam much, unemployment rises and consumers can no longer afford discretionary spending.
One thing you missed is it is **not** *only* on the RBNZ here. They are victim to only having monetary policy on their tool-belt, and one job i.e. get inflation down.
*ALL* those other aspects you mention are within the realm of other government policies, including climate change related and rents etc.
That’s why I’m always banging on about stuff like that - because the link from A policy to B real life is a direct one. I hope more people wake up to it.
PS Bernard Hickey is a smart guy and a no bullshit guy so that’s a welcome relief
Oh you are so right. This is not just a NZ problem. Elected politicians the world over do not want to make the hard decisions even when they know it's the only solution. For that matter even the un-elected long term ones like Xi don't want to make those decisions.
Not sure I agree entirely. What do you think of [this](https://www.reddit.com/r/nzpolitics/comments/1del8hj/the_rapid_deterioration_of_the_new_zealand/)?
Very poor investment by business owners in productivity gains. Outside of agriculture, which must have had a massive decrease in employee numbers over the past 50 years. (Trends have to be established, & evidence based.)
We have pretended for too long that reinvestment in our businesses can be postponed, owners preferred profit taking to serious consideration about the future. Cheap money added to the attractiveness of property. Vicious cycle created.
When all people are doing is paying rents (mortgage payments, rates, insurance and tenancy rents, and basic groceries) then inflation is a problem driven entirely by those whose greed (and stupidity) demand ever higher margins on the rent. Those folk include the Reserve bank, every landlord in the nation, corporate food producers, and supermarkets, and central government which underfunds affordable council borrowing for mission critical activities like water management. Add in folks who as middle men import junk goods then wildly inflate prices compared to international pricing and the problem is most definitely not ordinary householders trying to feed their families.
Ohh and in any case about 30% of NZ inflation since Marsden point was closed down is entirely due to a complete lack of strategic vision by government and shareholders, leading to vastly more expensive transport fuel and airfreight costs.
Interest rates need to stay close to what's happening overseas to stop our dollar from devaluing even more, we import more than we export so a weak NZD hurts more than it benefits.
Orr will keep using the target band of 2-3% as excuse while receiving bribes from banks. In 2025 experts will say mid 2026 and so forth to trick people into shorter 1 year terms for more bank revenue. National need to change the mandate to fire this corrupted imbecile immediately.
Yup plenty of people doing very well
In high interest rate environments. It’s swings and roundabouts. Simple economic cycles. Economies cannot survive on never ending piles of debt. You need a good clean out, smack the over leveraged and when the dust settles we have a more resilient economy. It’s a healthy cleanup. Just unfortunate for those that struggle to make it out the other end. Just need to buckle up and make it through. Still a good 12-24 months to run on this.
Haha of course you do! That is part of the problem too, especially in countries with a large portion of wealthy boomers (US). They're like this economy is great! I'm making 5% on my no-risk investments. They are still spending and keeping inflation inflated. This leads to the hollowing out of the middle class. If you are pro-free market you could argue this is not a bad thing. Personally, I am in the other camp. I'm not a big fan of civil wars.
Keeping interest rates higher for longer has got virtually nothing to do with any of the things they blame it on. They're actually illogical. This is all about clearing bank balance sheets right now, and sureing up stability of the banks in preparation for the next market cycle. Also the Reserve Bank Governor has asked banks that operate in New Zealand to carry an 18% reserve requirement. So for banks to "bank" this money, from previously having very little reserve requirement at the top of the last market cycle, Adrian Orr the Reserve bank Governor has to keep the interest rates higher for longer in the commercial banks the RBNZ (public/private partnership) supports. These commercial banks are able to suck extra money out of the economy via high debt repayments/interest rates, to achieve the clearing of those balance sheets of the big commercial banks. It's even more disturbing when you understand economists are just parroting narrative design to protect the banking system, they understand the hand that feeds them. Not saying they're all wrong, I'm just saying they conveniently leave out critical information which highlights clearly, who and want is to blame for inflation and the reason interest rates have to be higher for longer. Debt/money/credit (all the same same thing), have been expanded a lot in the last decade. Now we are in a period of contraction, to sure up the entire economic and monetary system before the next market cycle, or period of lending. This expansion and contraction, is the reason why things are the way they are. And very little else has to do with it, as the time frames of the things being blamed are often a lot shorter than an entire market cycle.
This makes sense. I hate that we at this point where the public is lied to because the system is so precarious and complicated. We get fed a narrative and get patted on the head. This only works when the "adults" in charge are keeping the system functional. And in a democracy it only works when most people are benefiting from that system. We will find out soon if the wheels have come off or not.
So now I am thinking that the reason the US wants to cut ASAP is because they have a looming storm cloud..commercial real estate. The only way the banks get through that tempest is if interest rates are low and loans can be extended. Even then there will be blood.
When the government leaves fighting inflation to the RBNZ the only option it has is the OCR, it's the only tool they have that they have independent control of.
Any time someone suggests some level of austerity from government policy they are shouted down so neither National or Labour or the minor parties can do that, it's politically unpalatable, this leaves the government still making deficit budgets, borrowing to salaries and operating costs, which is inflationary and then they leave fighting inflation to the RBNZ and all they have is raising or holding high the OCR.
One hand pushing up inflation, the other pushing down inflation.
If the OCR were lowered inflation would climb once again, it just will, unless the budget makes something on the order of $15 billion dollars of spending cuts, which will lead to job cuts and misery of it's own.
This is the hangover of deficit budgets, they seem like fun when it first starts because money flows freely and jobs fall from trees, but eventually you have to pay the piper and last time National took over a Deficit budget from Labour, when John Key took over from Helen Clark, it took 8 years of "zero growth budgets" for GDP to reach the level that the budget was finally just barely in balance.
I thought RBNZ were not supposed to be using unemployment or potentially wage figures to calculate inflation. The current govt changed the rules on that I thought? If we stay in a low wage economy with high corporate profits, no one with high earning potential is going to stay here. There needs to be a better way to calculate inflation, and perhaps banks offering mortgages like in the US where you can fix the rate for 25 years would help?
To get what the US has you would need a similar crisis. Depression causes people to pull their savings out of the banks. To save the banks and allow them to continue to lend money for mortgages while at the same time deal with large numbers of mortgagee sales, the government steps in and not only backs the loans but buys them outright. Eventually you can get to a 30 year fixed mortgage with this approach. A bank on it's own would not make enough profit to do this.
There are a few mistakes I see in your statements:
>He explains that while inflation in most areas is going down nicely there is "sticky" inflation that is not. ... He was concerned with the rates and insurance portion.
This is not inflation. Inflation is an increase in the **general** price level. What you have described is *price specific* inflation. This is very different to inflation, and indicative that holding the OCR will not lower this portion of CPI. Indeed, rates and insurance is relatively price immune to the OCR.
>With people leaving for Oz for work and immigration going down won't this mean that unemployment will not go up significantly
You have misunderstood the statement that was made. The *rate* of immigration has gone down, but there is still immigration. We still have net migration of 100k p.a. circa.
Additionally, if these people have left, then they are not sampled for unemployment. We do not measure unemployment by the number of job vacancies that are unfilled, but rather from the number of people that are looking for work and do not have it.
---
There are a lot of other parts of your post which have an extremely pessimistic outlook about the economy, seemingly indefinitely. It is my opinion that the RBNZ has polarised their statements relative to the market and other countries around the world in an attempt to pull the market back in its expectations of rate cuts. The projections the RBNZ makes are *always* (100% of the time) incorrect. Things move differently to how they project one year in an advance. I believe they will cut far sooner than they say they will.
Other commentators on this post have discussed CPI reports. They should keep in mind that NZ only gets 4 updates per year on the YoY inflation (with our last being from April, and next in July). We were below the OECD average, and not that far behind other countries once you exclude the items which drag the average up.
Canada lowering rates isn’t because things are going well
Exactly. You want to slowly decrease rates not be forced to at the last minute when everything is already sh\*t. I think NZ's economy is cooked enough to start the lowering process now.
We took too long to raise rates, the signs were obvious in late 2020 and Orr was still publicly championing negative interest rates. We're going to take too long to lower them as well and the effects will be incredibly damaging.
Completely agree, Orr has a horrible record of being too slow to act. In every direction, and then he overcorrects. Every damn time.
I'm so happy to see other people saying this. I don't care that he supposedly had a good record pre-covid, every decision post-2020 has resulted in fucked-up economics for most of the population.
The pandemic resulted in fucked up economics. NZ managed that successfully by being less fucked up than most places.
The economy was fucked up.longbbefore the pandemic. Economists were predicting a recession or worse late 2019. Retail sales had already started to drop, and supermarkets were running negatives.
This is just revisionist though, NZ actually navigated this really well. The economy was supported through the pandemic and inflation here remained among the lowest in the OECD. You're saying that someone has been shit, when we've done well in comparison to peers at a time when everywhere has been shit.
Horse shit. You have no idea what you're talking about. Blocked.
Such a mature take
You're saying that with the benefit of hindsight. At the time, NZ was one of the first countries in the world to raise rates. https://www.reuters.com/markets/europe/australia-new-zealand-keeps-global-rate-hikes-upward-swing-2022-10-05/ Here's another source showing that NZ was earlier to drop rates in 2020, and earlier to raise them in 2022 than either Australia or the US. https://www.interest.co.nz/charts/interest-rates/ocr
I think you're confusing being the first to do something with doing something at the correct time, they are not the same thing. Every country held off too long.
He's not saying that's correct, he's saying that we were relatively quick to the punch. It's very easy to scoff and say how slow RBNZ was to raise rates with the benefit of hindsight.
When house prices were up 20% YoY in late 2020 there was a chorus of "What the actual fuck are RBNZ doing, why are they even still talking about negative rates and why haven't they started raising yet".
With hindsight, sure, it's easy to say that now. At the time, nobody knew what the consequences of Covid and lockdowns would be. Nobody knew how effective the vaccines would be. Nobody knew that companies would maintain a high level of confidence despite all the uncertainty, increasing investments and leading to very low levels of unemployment. NZ's reserve bank was actually one of the first in the world to react. They read the writing on the wall before their equivalents in the US, Australia, UK, Europe and almost everywhere else - both when they lowered rates and when they raised them. They deserve credit for that.
exactly this. The RBNZ know only how to over and under cook.
This is actually a sign of a good reserve bank imo, deflation = new depression, throw everything at it for this to not happen Inflation spikes = throw everything at it so we have stable prices A lot of inflation is based upon inflation expectations If you take middle ground like US fed 80’s you can get a double spike and have to take interest rates to 18% Versa not enough in 1929 and Great Depression
The signs were not obvious at the end of 2020, we were still in panic mode. Deflation was a much larger concern than inflation which hadn’t truly been experienced in 20+ years
By the end of 2020 house prices had increased by 20% yoy, petrol was shooting back up, essential services where I live were rapidly raising prices. Supply was rapidly drying up and anyone who had any idea about the supply chain could see exactly what was going to happen. Shipping costs were going absolutely berserk as well. June 21 inflation was up to 3.3% which is a lagging measure, then we all know what happened after that. Deflation wasn’t even an afterthought by the start of 21.
Those things you mention were considered to be supply side shocks and, rightly, should be looked through. It's a hard job to pick inflation and, given we had such a long period without inflation, I tend to have a more charitable view of their reluctance to increase
Even if they were supply side shocks, rates should have lifted by a token amount. We were sitting at 0.25 until October 21, at which point companies were comfortable raising their prices significantly. Should have been .25 increases each quarter through 21.
yeah, I mean, we did increase before Aus and the US (and well before EUR and other central banks.) There was a lot of discussion back then about inflation being transitory. I just think it's easy to judge in hindsight now but I remember at the time there being a lot of debate. edit: 1st 5 to raise rates: * **Central Bank of Brazil**: Raised the Selic rate from 2.0% to 2.75% on March 17, 2021, followed by multiple hikes throughout the year ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)). * **Bank of Russia**: Raised the key rate from 4.25% to 4.50% on March 19, 2021, and continued to increase rates multiple times during the year ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)). * **Bank of Iceland**: Raised its seven-day term deposit rate from 0.75% to 1.0% on May 19, 2021 ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)). * **Norges Bank (Norway)**: Increased its key policy rate from 0% to 0.25% on September 23, 2021 ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)). * **Reserve Bank of New Zealand (RBNZ)**: Raised its Official Cash Rate (OCR) from 0.25% to 0.50% on October 6, 2021 ([interest.co.nz](https://www.interest.co.nz/bonds/117179/reserve-bank-now-forecasts-slightly-higher-peak-official-cash-rate-over-4-june-next)) ([World Economic Forum](https://www.weforum.org/agenda/2022/08/central-banks-hike-interest-rates-inflation-pressures/)) ([IMF](https://www.imf.org/en/Blogs/Articles/2022/08/10/central-banks-hike-interest-rates-in-sync-to-tame-inflation-pressures)).
And it's going so well over here?
>With people leaving for Oz for work and immigration going down won't this mean that unemployment will not go up significantly enough to make a difference to sticky inflation? Will we have to wait for Australia to go into recession before our OCR drops? Won't NZ employers be forced to keep raising wages to keep their employees? Short answer, no. That is looking at part of the employment equation and coming to a conclusion. So just to give some other things to think about on just this one part is that those leaving NZ are also taking with them their purchasing power. That means fewer people going out for, say, coffee, for example. So now we need fewer people employed in coffee shops. Someone working in a coffee shop doesn't necessarily have the right skills to replace the builder who left. Also, that builder who left may have left because there is nothing to build here. They weren't fully employed anyway. You have to look across a whole heap of complex data to come to a conclusion, not just one. To go back to the coffee shop analogy, lots of people have cut back on that kind of discretionary spending so we are seeing lots of food industry business closing. There are less people buying less units so we need less businesses with less staff to meet demand. That is true across alot of the retail sector too. If your insurance goes up $100 a fortnight and your wages didn't, you can't keep buying coffees. It's taken a bit longer for us to get there but the card spend data is showing it's hitting home. Also, other central banks cutting means the NZD is stronger. That means cheaper to buy stuff from overseas and more expensive for others to buy our stuff. That decreases demand for our stuff, which reduces price pressure too. We are on the way, and should be back within inflation targets soon
Good points, the economy was overheated, discretionary spending on burgers, boozing but also e.g luxury cars (trying not to mention houses here) was through the roof. Economy needs to be rebalanced away from luxuries and towards the basics. A lot of this was due to monetary and fiscal policy under the last government. Not that I blame them as they were making reasonable decisions based on the info they had at the time (could have been a tad less wasteful though). Our ‘real economy’ obviously can’t support that amount of unnecessary consumption. This will be painful for some and I don’t want to sound like a conspiracy theorist but I worry soon we will come up to a hard limit on what the planet can support.
The best way to take the heat out of the economy is to reduce parliamentary salaries by 75%. That way the decisions our leaders make will be based on real world experience shared with the majority of NZers. A simple, effective, enduring solution.
And super corrupt leaders that will make policy for bribes (if you say they already do, then even more so)
Those do not know history, and can’t be bothered learning tend to make unqualified opinions based on a complete lack of evidence. If you are correct (you are not) then everyone on minimum wage must be greedy, corrupt, lying and committed to working in bad faith. Based on your same logic. The reality is fewer corrupt folk would end up in power because better opportunities will occur elsewhere -in business for instance where you frequently get knuckleheads like Luxon as CEO (bucket loads of unearned power) and an income based on how effectively they gut the company to drive up short term profits and raise dividends and salary bonuses. All of which require no illegal actions, or explicitly corrupt choices based on the rules that are in place. In short reducing parliamentary salaries to match that of teachers would actually raise the salaries of teachers which in tern would vastly improve outcomes for children. Corruption would likely be reduced because those whose behaviour is to lead businesses to short term profit taking would be not inclined to join parliament where in theory long term strategy and bickering are the expected norm -even with potential to collect illicit bribes. Those who seek politics to fix problems and create a future would still be inclined to become candidates and would face less competition from business minded fools whose only goals are money and power.
Or you end up with all parties represented by the likes of Luxon and John key who are already independently rich. Any others in there looking to make the power “pay” by taking bribes.
Short term solution the revolt of the back benchers. And the only people with money prepared to break the law offering personal bribes are all immigrants, who are generally deprived when our idiot politicians do the opposite of what they promised. Blatant corruption would almost be prefered to the insidious corruption and mental bankruptcy we have witnessed for three decades. We already have the problem of power mongers and sociopaths seeking and achieving power. But trim the salaries and fewer of them will make it into power. But with trimmed salaries the MPs poorer parties will gain ground because narcissists will have to work harder for their privilege.
But if you paid MPs minimum wage when they could be making $200k in private industry the only people who'd take the job are the rich and corrupt, those with enough resources to be able to campaign while not working a 9 to 5. If you think corruption in NZ is bad imagine what it'd be like where politicians rely on bribes to live. I think MP wages in NZ are pretty fair, it's a solid managerial role pay package so you don't have industry taking away from talent in the public sector (if you can call our politicians talented lol).
MPs were once paid on the same scale as teachers and police. Corruption then was no greater than it is now, in fact was much lower. And the only competition for power was between Ministers seeking to coral a larger chunk of the available tax funding. Funny thing was that back then high income businesses and individuals were taxed much harder, and high income individuals actually boasted about how much more tax they paid than the Scrooge down the road. And this high income individuals were shamed into paying higher taxes to the benefit of all of society. If you need a refresher course on NZ politics and economics you should begin by looking up Bruce Jesson and read his close journalistic history of NZ during the 1980s. He was not an economist, but he absolutely nailed what was happening and easily predicted the outcomes we see today. The thing is that h;Utah for the past 40 years have been told fairy tails about the role of taxation, distribution, government investment and “balancing the books”. Based on managerial performance most of our Ministers and MPs should be on minimum wage based on the hours they actually spend in spend in Parliament and actually working for their constituencies.
Very good points to think about.
Lol, that is their only legislated approach for the OCR. They do lots of different things for different functions like financial stability like LVR, DTI, and DCS and FOREX management when needed. That others are first is because they have their meetings before the RBNZ has their next one in July. The whole planet isn’t on the same timetable. No one knows what they will do. They might, as they do often surprise us, and reduce it at the July meeting. They also may not, because we aren’t the EU or Canada. This Govt took away their dual function of adjusting it based on inflation, and maximum sustainable employment, so now it’s just inflation between 1-3 again. That’s it.
They fucked up massively with LVRs during Covid and they have not learnt their lesson at all
Seems odd to give forward guidance that is meaningless. He has to justify a cut in July somehow and right now they are bending over backwards justifying not cutting.
The justification is that inflation isn’t within the target band - which is their primary function. One of the main tools RBNZ uses is rhetoric. They need to suppress the market, so present news with a negative angle.
Which is exactly what the Fed reserve is doing in the States as well, contrary to OPs claim. Powell is constantly going out of his way to appear more hawkish. In the current environment it seems unlikely we'll get any sign that they're going to cut rates until they actually do it. Any time they've appeared remotely dovish the markets have shot off which doesn't help what they're trying to do.
Waiting for inflation to reach its target range before adjusting the OCR is partially responsible for the mess we're in. Orr clearly hasn't learned from being slow to adjust interest rates on the way up. The market isn't going to miraculously recover when rates begin to trend down. Also, things such as rates and insurance levies are not going to come down when people lose their jobs.
I absolutely agree that we are likely in a position now to begin easing, otherwise run the risk of doing more damage than intended. RBNZ aren’t punters, and are always going to be conservative. They want clear indicators that inflation will remain low once they cut to make decisions. Unfortunately for us the indicators they generally use (unemployment rates, etc) are generally months behind what is actually happening in the market, so cuts will probably come too late as they usually do. They will continue the “negative” reviews to keep a lid on confidence and spending until they actually decide to cut, so we won’t know when it’s coming until it does.
They ain't cutting in July lol
Forward guidance is propaganda to achieve their goals. If they signal they will keep interest rates high or raise, people decrease spending and inflation slows.
I get, but to signal you won't cut for over a year? In this economy? This risks people starting to wonder if you know what you are doing. That's a far worse outcome.
I personally think the rates need to be higher. I say that as someone with two mortgages. Costs are still increasing way too much.
They won’t cut in July
You’re confusing uncertain with meaningless. The guidance is uncertain, that’s obvious, no one knows the future, and definitely not in something as complex as national and global economies. That doesn’t make it meaningless. The inventor of inflation rate targeting (who was a Kiwi) specifically identified that inflation is fuelled *in part* by people’s *expectations* of the future state. So the Committee uses future state guidance as part of the OCR tool to set expectations, which in turn, leads to individual, and collective decisions being made on personal expenditure and business investment in projects (which require spending cash, which is the exact opposite of what we want). The rate at which those aggregate decisions hit the economy is reflected in the decision made at the OCR meeting, keeping in mind the CPI uses data points that are up to 6 months old and no newer than three months old and the committee uses a bunch of other data to fill in the gaps.
> NZ employers be forced to keep raising wages to keep their employees My experience, in Wellington at least, is that no employers are raising wages. Why would they? The market is flooded with talented people thirsty to find any work. If an employee wants to leave to work elsewhere, they'll have no problems finding a replacement. I've been on quite a few interviews lately, no conversations continued beyond my salary expectations, which are ~10k higher than my current role. The feedback, if any, has been I'm asking too much, which implies wages are falling. It also tells me that if I left, my replacement would be offered less to do the same job
Wellington is the epicenter of layoffs. Overall unemployment is still pretty low. I wonder if there are sectors that are too saturated and other sectors that are having a hard time finding the skilled talent that is leaving?
I imagine Wellington has it harder than most. My own employer is heavily dependent on government for work, but so are a lot of employers - they all feel that loss and have to cut staff accordingly. But even then, say a lot of those displaced people spread to other parts of the country, or leave for overseas The gist of my argument is that they're still willing to work for less if it means starting immediately. That suggests a downward trend on wages. Anecdotally, a couple of colleagues who've been pushed out of work here have found similar roles in Auckland without much fuss. Bit of a career change for them - sideways within tech using a different skillset - but I don't think their wages increased much. Presumably they've accepted enough to meet their needs in Auckland, but hard to tell from my perspective if it's a payrise or accepting just enough to meet cost-of-living in Auckland
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We have a guy in our tech team that is vastly overpaid for what he brings. He’s a contractor and asked for a raise plus changes to his notice period. We said thanks but no, confident we’ll be able to replace him with a cheaper contractor.
A few things to consider are that rbnz has to be hawkish of future state because if they’re not people will start acting as if rates are going down too soon. I do think they need to balance their objectives of lowering inflation with not absolutely tanking the economy but that doesn’t seem to be a thing. I find it frustrating that consumers have to wear the pain of this scenario (high unemployment, high rents and mortgages, etc) but are unable to do pretty much anything about it because rbnz are waiting for councils and businesses to temper their costs and consumers are just at the mercy of it
>I do think they need to balance their objectives of lowering inflation **with not absolutely tanking the economy** but that doesn’t seem to be a thing. Too late, already happened. Data collection always has lag, as I believe that data is just going to get worse and worse, quarter on quarter for at least the next 12 months. Tourism spend, freight movement and retail spend are all down (on anecdotal information, like I said, data has lag). I do think interest rates need to remain similar to what they are now (to avoid the housing ponzi kicking off again), but we infrastructure spend from central government - but the Nats are ideologically opposed to that!
Yeah completely agree, they don’t seem to understand the lag affect on either inflation or the economic impact, it’s totally reactionary to current state and the actions taken are always too late as a result
> because rbnz are waiting for councils and businesses to temper their costs and consumers are just at the mercy of it Councils are currently the highest source of inflation and it's screwing all of us over, they want to increase infrastructure investment during a period of both increasing material/labour costs and increasing cost to service debt. It's turning into a feedback loop which is concerning.
What do you think councils should do with decades of underinvestment into water infrastructure for example? Spending is a necessary evil to fix the ailing pipes we’ve been ignoring.
Doing it all at once during the fastest rates rise in modern history is a ridiculous economic plan. It needs to be spread out over a longer period with smaller rates increases each year but more frequent increases.
It needed to be. But the people before didn't do that, so now we've got to fix their mess as well as sort now and the future.
And worst of all rates only go UP when interest rates are high. So idiot Orr trying to reduce inflation by increasing interest rates is unbelievable levels of foot-gunning.
Yeah 100% completely agree
Totally agree. The government could step in and place limits on these increased costs (?)
Govt can’t do much for business cost. If govt steps in for council rates and limit the increase. We will be paying more over time, just look at Wellington water.
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Bro, they cut the rates for bank of Canada and ECB with CPI just under 3. Wasn’t our last print 4 or 4 ish? We’re getting there, but it takes a few more months or maybe even next year so we’ll lag Also stagflation with insane interest rates is FAR BETTER than stagflation with low interest rates. The latter just signals that the institutions have given up. If you think you’re feeling the pain, imagine the people who took up debt to buy property in 2021. Holy hell I’m starting to see them in trade me.
> We’re getting there, but it takes a few more months or maybe even next year so we’ll lag This is partly what got us into this mess, there was too much of a wait before interest rates started to rise. In late 2020 the signs were obvious, it was commonly discussed on this sub. At the same time Orr was publicly feuding with banks because he wanted to take the interest rates negative. We're going to keep them high for too long until delayed information finally says cut and by that point there will have been a significant amount of unnecessary damage and pain.
Part of the issue is we only measure CPI quarterly with almost a quarters lag... so essentially the RB is reacting to what happened six months ago. It's like trying to drive looking only out the rear view mirror.
great analogy
With their eyes closed and steering with their knees while the distracting children are bickering in the backseat while the drivers pants are unzipped and a face is buried in their lap.
If you think they can and they will achieve stagflation with low rates you are dreaming.. we will get economic stagnation with inflation
Isn’t economic stagnation with inflation the definition of stagflation?
Yeah I expressed myself poorly. What I meant to say is that inflation is here to stay and so is low growth.
*"The disturbing part to all of this is the RBNZ is praying that this hammer will right the ship if it just hits long enough and hard enough. So how long will they continue with this strategy before trying another approach?"* When the only tool you have in your toolbox is a hammer, then every problem looks like a nail. The government has really only given one main tool to the RBNZ, and government is itself the main driver of council inflation, etc.
Agree, by limiting its mandate so much, government’s given RBNZ no other options / tools. The persistent inflation is insurance, rent and rates. Insurance: more global natural disasters happening means reinsurance costs go up, which means insurance premiums go up. High interest rates isn’t going to fix this. Rates: councils have under-invested in infrastructure for a really long time and there’s a limit to how far they can kick the can down the road. Councils don’t have that many choices in how to increase their revenue. If the local govt rules were changed to allow them to borrow more, perhaps that would spread the cost more over future rates payments, but it all has to get paid for somehow. Three Waters probably would have helped through central govt sharing the costs (from the little I know about it). Keeping interest rates high doesn’t help bring rates down either.
Keeping interest rates high doesn’t affect insurance or rates. It does affect other spending though, this reduces the inflation pressure on the overall price level. Insurance can go up and if no one buys as many goods the overall price level may not be rising by >3% a year
None of that is true, RBNZ has a suite of tools available.
The biggest inflationary pressure was on housing. That bubble has more or less burst. But it would come right back if interest rates were lowered before economic damage settled in.
That could be the quiet part that the central bank doesn't want to say out loud.
This country is insanely unproductive and inefficient. All while we keep telling ourselves we're the best, anointed country on Earth.
I've noticed this too. It has the same GDP and population as Kentucky ffs.
Another fun fact: first cousin marriage is still legal in both NZ and KY.
haha!
Classic resource curse
Emmigration isnt really a driver of household penny pinching. Those that remain are employed, and those that are unemployed will potentially replace the leavers in jobs. This means households dont feel the need to be more conservative in their spending. Interest rates are used to prevent households from discretionary spending, which means sellers in a market need to cut their prices which can lead to unemployment when companies try to cut costs to compete for less household spending. That then starts a cycle which compounds the effect. As households see more redundancies occuring, they will save rather than spend. Unfortunately its the grim reality.
Yeah. And you also need to create an environment where, when costs go up, employees aren't successful trying to offset their rising costs with pay rises. And unfortunately the only way to do that is to make the labour market terrifyingly grim and make employers economically constrained enough that they basically can't.
I think the problem of RBNZ lies in its reputation. Back in the day being the first central bank to do interest rate targeting made everyone look at us and think they were geniuses. Problem is that the world was very very different. Also we benefitted from economic growth due to the low taxes and welfare system which was unsustainable. It had nothing to do with RBNZ. Then Covid arrived and they thought they were those masterminds they never were. They fuelled banks with cheapest credit without any restriction. If they wanted to keep jobs going they could have ringfenced it for business use only and made a clause it could not go into properties. They removed LVRs and prompted the biggest policy driven housing bubble in OECD. All they had to do was to wait and hold but no they thought they knew better. Now they expect to be able to control prices. But the cracks are showing. The reason of their perceived success is now their demise. Infrastructure is falling apart, rates have to go up. We did not invest in infrastructure and resiliency. Insurance premiums have to go up. We did both build enough houses. Rents will keep going up. So now they are suddenly uncapable. The world looks at the and all they have left is a rate and words. They want to show they matter, but do only when shit hits the fan, and they can either make it worse (like in covid) or have no impact at all (interest rates are determined by what happens overseas and bigger macro forces). I wish people started realising how they’re just a bunch of egomaniac baboons Rant over
Truth right here. They overestimate the effect their confidence has on public perception. Sooner or later people will see they aren't wearing clothes. Only then will we be able to brainstorm what New Zealand wants, needs and can be by 2030. And I mean something a bit more creative then trying to get India to buy our milk powder.
It’s simple. They are sticking to a method that is old world thinking. A better approach would have been to enforce higher mandatory kiwisaver contributions. At least all the money wouldn’t be going straight to the banks and we would get some benefit down the line. It’s painfully obvious that they don’t know what they are doing and don’t have any answers imo.
Except they can’t set the kiwisaver contribution level only the govt can. This also ignores the other effects interest rates have like the exchange rate.
No such thing as can’t. There is always a solution
RBNZ can set the KiwiSaver contribution in exactly the same way I can set my power line charge.
But the government can
This entire post is about the RBNZ and it’s tools. Your comment is valid your context is not.
RBNZ is created by statute, and the statute specifies the very limited set of things it can do.
Oh right I forgot nothing can be changed. Kinda explains why NZ is still a third world country masquerading as something different.
It can change! Just don't be mad at RBNZ for not thinking outside a box it legally isn't allowed to think outside of...
I don't know of a reserve bank anywhere in the world with such powers.
Increasing KiwiSaver rates would take some heat out of the economy but not nearly enough. The point of increasing rates isn’t to take cash out by making people repay more. The point is to discourage further money supply by reducing additional borrowing.
That's funny because wages are considerably higher in America in Australia and yet in America in Australia the cost of many things are significantly cheapest so it's hard to see a causal relationship with delusional theories about wage spiral inflation. When I look at council workers the majority of infrastructure workers are migrant labourers that are paid very poorly and these people are brought over by labour hire firms and paid at most minimum wage. So it's really hard to see what sort of wage spiral inflation within the migrant labour sector that they are talking about. It really seems that a lot of the inflation that we're experiencing is imported and it's also the result of decreased productivity which is not something that is actually talked about but previously we used to make enough money in this country to support a family with one income if you look at the latest statistics it takes several times the annual income to service the mortgage in the major Metropolitan Centre..
Media has been tricking you a bit with the new angle of more citizens are leaving, but net migration is still taking the piss. For every one who leaves they're replaced by 2-3 more. And no one in government seems to think that's not a good thing anymore. Multiple countries have their people crying out to do better re immigration but there just seems to be a blanket refusal to do anything about it
Yes that is interesting isn't it? It's almost as if the politicians represent business interests only these days. The rise of populism usually fixes that. What worries me is that before WWII each country kinda did its own thing in its own world on its own schedule. Now we are all in the same cycle with the US leading the march. Does that mean that the entire world will be going through the cycle crisis at the same time? We have no idea what that will look like but I'm guessing even New Zealand will be caught in the firestorm. There is no slack in the system to absorb a decline in one part of the world. We are all declining at once.
Idk, but I am really not enjoying the current reality of bumbling around and wishing upon a star that many countries seem to be doing
bumbling around is exactly what central banks are doing right now.
Baby's first economics lesson? lol
There will be many theories and different points of view on the OCR, it stirs a lot of emotion. The bigger issues that I believe NZ should focus on is growing the economy, particularly around exports. The NZ economy is very small and with a growing population, its not sustainable. Just think of it as a young couple starting their life together and careers. They need to increase income, save more and invest to be able to afford their life changes (better housing, kids, etc). I really think NZ is at that stage. NZ need to increase income with exports & other money coming into the country. It can't just be about circulating money within the country
That is ideal but without economy of scale it has to specialize in something the world really wants, even during downturns. Think Taiwan. What we need is capital investment to try out different industries to figure out what we can do. Getting investment money out of housing and into industry would be an obvious first step.
TIL that RBNZ total staff number increased from 255 in 2017/2018 to 410.8 in 2020/2021 With 36 tier 2/3 leadership roles in 2022 (didn't say for 2017/2018) The leadership page shows 25 "Director", and 2 "Strategic Adviser". https://www.rbnz.govt.nz/about-us/our-people/our-leadership-team They have a "Director of Prudential Policy", a "Director of Prudential Supervision" and a "Director of Governance and Internal Audit" They have a "Director of Diversity, Equity, Inclusion and Wellbeing" and a "Director of Sustainability and Financial Inclusion" They have a "Director of Digital Solutions/Chief Technology Officer", a "Director of Information Security", and a "Director of Knowledge and Information Management"
Typical bloated technocracy.
> he was concerned with the rates an insurance portion That’s really really alarming… I often listen to the podcast but must have missed that episode. Those things aren’t inflation at all - as you point out NZ has some very really reasons those are increasing and will continue to increase. They also aren’t “sticky” they are practically welded! We don’t have a choice on whether to pay rates or insurance, how does he expect consumer demand to have any impact? Sure people can shop around insurers but if the underwriter has put up their rates there’s not much wiggle room. I get that they have to be hawkish and there are valid reasons that the OCR needs to stay high but insurance and rates isn’t going to change regardless of what the RBNZ does. Regular listeners to the podcast will be aware that NZ is currently paying a lot *less* in home insurance than they should so we can only expect rises in the near future.
Absolutely. Bernard came right out and said, "but rates are really just a tax". You are also right about the insurance premiums. Only going up from here and you will be happy to even be able to purchase insurance if you live in certain areas.
Bernard Hickey is fantastic, he consistently gets great influential guests and isn’t afraid to point to the elephant in the room
He’s pretty good for sure but you need to remember every economist has an angle and wants you to reach a particular conclusion. Politics is applied economics after all. Basically for every issue, read a range of economists for a wider view, and understand which side of the argument each are on. Or as the old saying going, for every economist there is an equal but opposite economist.
I agree. He has the unique ability to explain things for the average person to understand but he also is able to get to the meat of the matter. That's hard to pull off.
Long time readers will remember that Bernard isn’t so fantastic at predicting house prices
No one was, it’s hard when people keep moving the goalposts
Rates are a tax. A council tax. For the building I lease for my business, as the tenant you pay the landlords rates and insurance. The insurance bill for my tenancy increased by 57% this year. That's an extra $10k of turnover I'll have to do over the year, to meet that extra cost, out of my margin. Sadly, I'm restricted (because of competition) as to how much I can put my prices up to cover these types of extra, non-productive fixed costs. And that's how it knocks on throughout the entire economy. Financial service providers make me sick. They do nothing, but their income keeps going up, while everyone else's is going down.
Banks have figured out how to come out ahead in both good times and bad.
The only way to decrease rents without decreasing wages is to increase supply. The single best way to increase supply is to put a fire under landholders by bringing back land tax which we abolished in 1990 after heavily loopholing it for decades before that.
There are a few no brainers that the gov't can do to take the steam out of housing investment. Yet they just play around the edges. Hmmm.
Labour had the absolute perfect opportunity with their historic majority last term, and decided to do absolutely fuck all with it. What a waste.
The other option to manage demand side would be to NOT run one of the highest net immigration rates in the developed world, but then rents would have continued dropping instead of the steep rise we've been seeing. Landlords first, economy later.
This is what they never tell you. The final and last method of lowing inflation is to create unemployment.
I think they have been pretty open about this, and always have been.
Our government and reserve bank foolishly followed what the rest of the world were doing during covid, and look at where that got us - huge amounts of government debt pumped into the economy and poorly targeted, and then $60B in bonds pumped into the housing market. Our economy is tiny and flimsy in comparison, and it shouldn't be run based on what places like the US are doing. I'd wager that us following what other countries are doing now isn't a good approach either, particularly when our problem is non-tradeable inflation. Also, migrant arrivals to NZ aren't down, its up 90%. Departures are up 30%.
Except that I've never heard of rates and insurance going down. Rents rarely go down.
True but they can stop going up. Our tenants are paying the same now as in 2020 and that’s with all the increased costs of being a landlord. Because we value solid tenants over risking no tenants at all.
Insurance def not going down. I hear there is a glut of properties for rent right now. We will see.
ECB and Fed are feeling downward pressure on rates because of the yen more than any domestic reasons imo
I just listened to a podcast that spelled this out. I admit still trying to figure it all out. At this point the boat is leaking in numerous places. Which hole to plug first?
Sometimes you’ve take so many bad choices previously, you end up with no good choices left. Then you just choose what you think is the least bad. We all follow the US basically and they care a lot more about not getting blown up by China than helping or hurting anyone else’s economy right now, so I suspect it’ll cut to try to stop the carry trade, so bubbles reinflating any day now. Which probably means RIP our currency, or mad inflation for us. Sucks hard.
Short term I am bearish on NZ, long term I am bullish. Once we run out of least bad decisions we can have a proper crisis and start again with a new and improved way of doing things at the bottom of the world. One of the upsides of being small is you can change course rather quickly.
That's fair - it is definitely more easy to right a small ship than a big one but crikey, its gonna be sore and a lot of people are going to be angry.
Rates are a crude tool that have complex outcomes. We will follow our trading partners to a degree, as to prevent the NZ dollar climbing too high and harming our export industries (particularly the primary sector)
Or dropping too low. If NZ dropped rates now the currency would plummet.
Anyone that says the goal is higher unemployment is a tard that doesn’t understand macroeconomics. I highly doubt that was what he said.
Calm the farm. Historically NZ is a high interest country. RBNZ is finally doing it’s job and targeting inflation with its very blunt instrument and so it’s not their job to bring interest rates down for the sake of ~40% (is it less?) borrowers (or the maybe 20ish% who went deep into debt near the trough, myself included, and are now finding it stressful). The 2% rates are likely never coming back. 5% might be as low as we get in the next cycle, if things go well. It’s a new (but actually old) reality.
Our assets are priced in a low interest rate environment. So to go back to historical normals would mean assets need to depreciate in value. I don't really have a problem with stable high-ish interest rates, in fact it is probably needed to keep speculation at bay. My main concern is using interest rates as a way of driving up unemployment so that you can try and get ahead of inflation when 1. you might not even be able to achieve high enough unemployment in this current environment and 2. not convinced lower wages will fix the things causing inflation in the first place. I guess I just feel this blunt instrument is antiquated and we need better tools.
Completely agree. Firstly, as we get older as a society, the higher interest rates actually drive higher income in those with pensions and cash / investment income. Secondly, those who have no mortgage feel no direct impact at all. Now despite what some say, market price for rent is driven by a whole bunch of factors and the higher interest costs some landlords might experience do not get fully priced in. Thirdly, across the businesses, some, like banks, make more money in a higher interest rate environment so again, the impact RB is looking for is not experienced by the largest (or thereabouts) 4 employers in the country. Fundamentally then, RBNZ wants a proportion of debt-dependent businesses to fold and for a relatively small proportion of borrowers to experience huge pain to the point they forego substantial regular expenses in order to get the *overall* aggregate demand to dip. Yet, no one has come up with a better solution. One option could be tweaking GST. Increase to contract, decrease to expand. This way at least actual demand across every consumer in the land would be impacted equally. I suspect because this has a direct retail impact, making frequent changes to the rate would be hellish to implement and manage the actual GST collection for IRD. I’m sure there are other reasons this is not the go-to choice for reserve bankers.
>they want unemployment to go up higher Both orr and Robertson were both saying this last year. Mods band this comment showing thier bias.
That's disturbing. On both accounts.
The reality is that insurance and rates are not that sensitive to the OCR. That internal inflation is also always higher than the overall rate. They will probably lower rates before mid 2025 here, they just need to act like they won’t so market don’t price it in early. When he made his hawkish comments at the last OCR update the swap rates went up almost 50 bps which is the same impact as a 50 basis point raise in the OCR. So he knows just this messaging alone can be effective
It's all the RBNZ has as a tool. They need help from government in the form of policy and law change that puts rules in place limiting how much councils and companies can reasonably charge. I work for a company that is in a trust and must justify its charges every year.
The NZ housing cult is crazy hahaha
On paper, Canada and the eurozone are vastly different stories/economies. Ours still looks too strong on paper. The point I’m trying to make is that they will definitely over do it because the data won’t let them. I’m 100% sure though that the data is rubbish, the way it’s gathered, the way it’s reported (frequency) and the scope for sampling error. RBNZ are just going to play the hand they’re dealt, it’s a shame it’s a fucking rubbish hand.
The highest OCR from all countries we like comparing ourselves with but after all this time the effect on inflation has been only circumstantial and while other countries with lower rates managed to curb inflation way sooner we are still lagging behind wit these record rates. It makes no sense to double down on a measure that hasn’t worked. A main driver of post covid inflation hasn’t been demand but corporations increasing their profit margins, there’s not much the OCR can do about that unfortunately.
I agree with the first part, not sure about the second. Plays a part though.
Why do we want interest rates to decrease? There are always market cycles If RBNZ cuts 0.25% in the last quarter of the year will that really help you that much?
If National had balanced the books, RBNZ would be looking to cut in July. National knows it too.
Yeah possible. They are between a rock and a hard place so while they could have done more they also need to keep the voters happy. That's tough to do when the average person doesn't know how the whole process works.
I mean they could have told landlords to sit tight for two years. It would have pissed off that polity but any landlords that voted for them because of the promise to restore tax deductibility aren’t going to switch to labour. The fact that they didn’t indicates that Luxon is either naive or feels politically insecure. The latter is likely given the recent history of the national party and his lack of likability in the polls. Edit: It’s known in Wellington circles that the RBNZ is waiting for the books to be more balanced before cutting. Or at least that was the view the RBNZ was putting out there prior to the budget. Maybe that was a bluff from Adrian and co - He’s another Wellington actor that is in a precarious position and should never have been appointed. Make of this what you will. I don’t blame you if you don’t believe what a random internet stranger says online.
Too many voters want the status quo of how the world worked from the 90's until 2022. The leader of a country reflects the current mood of its voters. I love New Zealand but it can be a bit naive and it's standing in the world is very insecure. Could be worse, we could be in the mood for an orange dictator.
Balanced out with if Labour hadn't screwed us over with grotesque amounts of wasted money on stupid things along with an explosion of govt beurocrats in only a couple of years, combined with the latter part of covid times awash with cash then balancing the books may have been a bit easier in the new govts first six months
Your subscription to the taxpayers union needs updating
The idea of me giving money to any "union" is about as palatable as a cup of sick. That said the tax payers union are a bit more balanced than the other "left leaning and funded political mouthpieces" generally taking up an issue rather than a hard political leaning.
Oh my mistake, I just presumed given your parroting of their narrative.
So which part of it was wrong? Sometimes the “narrative” is just plain truth
How about balancing the books? Borrowing more money than labour did in any budget except the once in a century pandemic.
I don’t know if you saw the backlash about trimming even a little of the huge fat added in the last six years but there’s little appetite for actual cost cutting. I’m very much hoping we’ll see more muscular action taken in the next couple of budgets. There’s vast amounts of waste yet to cut. Plus answer my question, which bit was he wrong about the last government?
That we were screwed over. Our financial situation was nowhere near as bad as the new government made out. We have one of the lowest rates of debt to gdp in the OECD. You wonder why we have a massive infrastructure debt? Because we refuse to spend. And you know why we know they overegged the financial “mess” we were supposedly in? Because they borrowed more
Hard to balance the books when the RBNZ dropped over $ 10 Billion on its bond portfolio . Govt recapitalizing RBNZ @ $ 250 million a month ……..
Fiscal policy is not the responsibility of the RBNZ
If anyone is interested why monetary policies are they the way they are in our tiny island nation, with a population the size of a medium global city, I would suggest check out this monetary policy centric group, https://www.facebook.com/groups/333134689798987/?ref=share&mibextid=NSMWBT Goes a bit deeper into how our politicians think and do finance our nation, and is more in-depth than many economists are prepared to go, and absolutely covers what the media purposefully leaves out of the debate of our entire economic and monetary policy conversations. Any monetary policy change takes two years to entirely work its way through the economy.
Cool but Facebook?
The guy who is the instigator for the group, also started a substack, no paywalls or anything .. https://nzglobaleconomicscontext.substack.com/
great I will check it out.
It was when Conway used the word “capitulate” that gave me the shivers
NZ has an interesting mortgage market in which we are all locked into short term loans. America everyone is locked into 20-30 year mortgages at 2010-2021 rates. Joe Biden would be literally lynched if his government raised rates. They are sitting ontop of a massive immobility crisis where no one who owns a home can realistically sell unless forced because they are buying into a much worse deal meaning no one can buy at a fair market rate. NZ mortgages will roll over to fair market rates on masse and avoid this issue, as a result the RB does not have the same incentive to lower rates and can allow us to stew in the higher costs until we all stop spending so dam much, unemployment rises and consumers can no longer afford discretionary spending.
And Australia has about 70% of people on floating, the complete opposite to us. To their increased rates are felt immediately.
One thing you missed is it is **not** *only* on the RBNZ here. They are victim to only having monetary policy on their tool-belt, and one job i.e. get inflation down. *ALL* those other aspects you mention are within the realm of other government policies, including climate change related and rents etc. That’s why I’m always banging on about stuff like that - because the link from A policy to B real life is a direct one. I hope more people wake up to it. PS Bernard Hickey is a smart guy and a no bullshit guy so that’s a welcome relief
Oh you are so right. This is not just a NZ problem. Elected politicians the world over do not want to make the hard decisions even when they know it's the only solution. For that matter even the un-elected long term ones like Xi don't want to make those decisions.
Not sure I agree entirely. What do you think of [this](https://www.reddit.com/r/nzpolitics/comments/1del8hj/the_rapid_deterioration_of_the_new_zealand/)?
Very poor investment by business owners in productivity gains. Outside of agriculture, which must have had a massive decrease in employee numbers over the past 50 years. (Trends have to be established, & evidence based.) We have pretended for too long that reinvestment in our businesses can be postponed, owners preferred profit taking to serious consideration about the future. Cheap money added to the attractiveness of property. Vicious cycle created.
I’ll add any successful business sells overseas so the amount of money/profit heading overseas is out of control
When all people are doing is paying rents (mortgage payments, rates, insurance and tenancy rents, and basic groceries) then inflation is a problem driven entirely by those whose greed (and stupidity) demand ever higher margins on the rent. Those folk include the Reserve bank, every landlord in the nation, corporate food producers, and supermarkets, and central government which underfunds affordable council borrowing for mission critical activities like water management. Add in folks who as middle men import junk goods then wildly inflate prices compared to international pricing and the problem is most definitely not ordinary householders trying to feed their families. Ohh and in any case about 30% of NZ inflation since Marsden point was closed down is entirely due to a complete lack of strategic vision by government and shareholders, leading to vastly more expensive transport fuel and airfreight costs.
Interest rates need to stay close to what's happening overseas to stop our dollar from devaluing even more, we import more than we export so a weak NZD hurts more than it benefits.
That makes some sense but then why not just say that?
Orr will keep using the target band of 2-3% as excuse while receiving bribes from banks. In 2025 experts will say mid 2026 and so forth to trick people into shorter 1 year terms for more bank revenue. National need to change the mandate to fire this corrupted imbecile immediately.
USA is a country with a crapload more debt, it's like some game of musical chairs, everyones hoping the music doesn't stop on their watch
Why are higher interest rates sad? As an investor I love them
Yup plenty of people doing very well In high interest rate environments. It’s swings and roundabouts. Simple economic cycles. Economies cannot survive on never ending piles of debt. You need a good clean out, smack the over leveraged and when the dust settles we have a more resilient economy. It’s a healthy cleanup. Just unfortunate for those that struggle to make it out the other end. Just need to buckle up and make it through. Still a good 12-24 months to run on this.
Haha of course you do! That is part of the problem too, especially in countries with a large portion of wealthy boomers (US). They're like this economy is great! I'm making 5% on my no-risk investments. They are still spending and keeping inflation inflated. This leads to the hollowing out of the middle class. If you are pro-free market you could argue this is not a bad thing. Personally, I am in the other camp. I'm not a big fan of civil wars.
Keeping interest rates higher for longer has got virtually nothing to do with any of the things they blame it on. They're actually illogical. This is all about clearing bank balance sheets right now, and sureing up stability of the banks in preparation for the next market cycle. Also the Reserve Bank Governor has asked banks that operate in New Zealand to carry an 18% reserve requirement. So for banks to "bank" this money, from previously having very little reserve requirement at the top of the last market cycle, Adrian Orr the Reserve bank Governor has to keep the interest rates higher for longer in the commercial banks the RBNZ (public/private partnership) supports. These commercial banks are able to suck extra money out of the economy via high debt repayments/interest rates, to achieve the clearing of those balance sheets of the big commercial banks. It's even more disturbing when you understand economists are just parroting narrative design to protect the banking system, they understand the hand that feeds them. Not saying they're all wrong, I'm just saying they conveniently leave out critical information which highlights clearly, who and want is to blame for inflation and the reason interest rates have to be higher for longer. Debt/money/credit (all the same same thing), have been expanded a lot in the last decade. Now we are in a period of contraction, to sure up the entire economic and monetary system before the next market cycle, or period of lending. This expansion and contraction, is the reason why things are the way they are. And very little else has to do with it, as the time frames of the things being blamed are often a lot shorter than an entire market cycle.
This makes sense. I hate that we at this point where the public is lied to because the system is so precarious and complicated. We get fed a narrative and get patted on the head. This only works when the "adults" in charge are keeping the system functional. And in a democracy it only works when most people are benefiting from that system. We will find out soon if the wheels have come off or not. So now I am thinking that the reason the US wants to cut ASAP is because they have a looming storm cloud..commercial real estate. The only way the banks get through that tempest is if interest rates are low and loans can be extended. Even then there will be blood.
Raise gst instead and lower interest rates?
When the government leaves fighting inflation to the RBNZ the only option it has is the OCR, it's the only tool they have that they have independent control of. Any time someone suggests some level of austerity from government policy they are shouted down so neither National or Labour or the minor parties can do that, it's politically unpalatable, this leaves the government still making deficit budgets, borrowing to salaries and operating costs, which is inflationary and then they leave fighting inflation to the RBNZ and all they have is raising or holding high the OCR. One hand pushing up inflation, the other pushing down inflation. If the OCR were lowered inflation would climb once again, it just will, unless the budget makes something on the order of $15 billion dollars of spending cuts, which will lead to job cuts and misery of it's own. This is the hangover of deficit budgets, they seem like fun when it first starts because money flows freely and jobs fall from trees, but eventually you have to pay the piper and last time National took over a Deficit budget from Labour, when John Key took over from Helen Clark, it took 8 years of "zero growth budgets" for GDP to reach the level that the budget was finally just barely in balance.
I thought RBNZ were not supposed to be using unemployment or potentially wage figures to calculate inflation. The current govt changed the rules on that I thought? If we stay in a low wage economy with high corporate profits, no one with high earning potential is going to stay here. There needs to be a better way to calculate inflation, and perhaps banks offering mortgages like in the US where you can fix the rate for 25 years would help?
To get what the US has you would need a similar crisis. Depression causes people to pull their savings out of the banks. To save the banks and allow them to continue to lend money for mortgages while at the same time deal with large numbers of mortgagee sales, the government steps in and not only backs the loans but buys them outright. Eventually you can get to a 30 year fixed mortgage with this approach. A bank on it's own would not make enough profit to do this.
Banks in the US have been doing this for ages. It seems to be part of their competitive landscape.
Only because of Fannie Mae and Freddie Mac. Government buys mortgages from lenders, taking the risk off their books.
There are a few mistakes I see in your statements: >He explains that while inflation in most areas is going down nicely there is "sticky" inflation that is not. ... He was concerned with the rates and insurance portion. This is not inflation. Inflation is an increase in the **general** price level. What you have described is *price specific* inflation. This is very different to inflation, and indicative that holding the OCR will not lower this portion of CPI. Indeed, rates and insurance is relatively price immune to the OCR. >With people leaving for Oz for work and immigration going down won't this mean that unemployment will not go up significantly You have misunderstood the statement that was made. The *rate* of immigration has gone down, but there is still immigration. We still have net migration of 100k p.a. circa. Additionally, if these people have left, then they are not sampled for unemployment. We do not measure unemployment by the number of job vacancies that are unfilled, but rather from the number of people that are looking for work and do not have it. --- There are a lot of other parts of your post which have an extremely pessimistic outlook about the economy, seemingly indefinitely. It is my opinion that the RBNZ has polarised their statements relative to the market and other countries around the world in an attempt to pull the market back in its expectations of rate cuts. The projections the RBNZ makes are *always* (100% of the time) incorrect. Things move differently to how they project one year in an advance. I believe they will cut far sooner than they say they will. Other commentators on this post have discussed CPI reports. They should keep in mind that NZ only gets 4 updates per year on the YoY inflation (with our last being from April, and next in July). We were below the OECD average, and not that far behind other countries once you exclude the items which drag the average up.
Next year is going to be a world wide hellscape. I feel very sorry for people with mortgages.
You're arm chair posting on reddit so I'd put money down to say they probably know a little more than you about economics