As expected, the Reserve Bank Governor Alan Bollard has lifted the official cash rate from 2.75 to 3 per cent, arguing that although the outlook for economic growth has softened he still thought it was time to tighten the reins.
That’s questionable, but for me the real worry is the Reserve Bank’s concerns about the weakness of New Zealand’s economic recovery:
“In New Zealand, domestic demand is subdued. Households are cautious, with retail spending growing only modestly, housing turnover in decline and household credit growth weak. While this caution has been evident for some time, the recent slowing in net immigration will act to further dampen consumer spending. Business investment remains very low, with corporate lending continuing to be subdued.”
With an economy still struggling to get on its feet, rising interest rates, a GST increase in the pipeline and a growing wage gap with Australia, New Zealand is far from out of the woods. National’s handling of the economy is sure to come under increasing scrutiny over the next few months.