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Bollard raises OCR, notes weak recovery

Written By: - Date published: 10:43 am, July 29th, 2010 - 20 comments
Categories: Economy - Tags: ,

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.

20 comments on “Bollard raises OCR, notes weak recovery ”

  1. prism 1

    Is there too much reliance on consumer spending and housing etc in NZ as under-pinning the economy? The household economists say we should be earning our own way, not living off credit.
    If we could get better return for the work we do and goods sent overseas, we would be better off. But every time there is a surge in prices, the exchange rate travels up and we’re cut off at the knees again.
    If this government had any balls it would show itself to be a bold, wise, robust, business savvy crowd that were prepared to push for changes that would assist us to both stay in the accepted financial circle and guard our returns from financial pirates and impulse ‘cash and carry’ manipulation of our exchange rates.
    This eats into our hard earned money while we struggle at the productive end with higher interest rates than just about anywhere because that keeps our economy healthy. Healthy no, anorexic more – the skinny waif look doesn’t suit dairy-fed NZs.

  2. TightyRighty 2

    idiot. high interest rates reward responsible individuals who live within their means and save. it’s only a burden on those who have borrowed beyond their means. no sympathy here.

    • george 2.1

      Or on those who export. Or those who invest in those who export. Or on those who find their savings buy a lot less than they should because the debt that high interest rates attract from overseas has pushed up inflation. Come to think of it the interest rate hikes hurt everyone except importers, overseas lenders and currency speculators. I think you may be the idiot Tighty.

      • TightyRighty 2.1.1

        Raptorjesus!!11 where to even begin with that? you really are an insult to those with the name george. a whole series of lessons is needed to correct the glaring inaccuracies in your statement. i only have time for the two easiest.

        the easiest one to remedy – “Come to think of it the interest rate hikes hurt everyone except importers, overseas lenders and currency speculators”. Be honest george, you didn’t really think about that did you? you may be a broke swamp donkey, but even you should understand that if you have money in an interest bearing account, and your interest rate goes up, you earn more interest, simple or compounding. therefore you are being rewarded. lets not even go into the motivations in both borrowers and depositors that high interest rates initiate.

        slightly more difficult to remedy, not much though, “Or on those who find their savings buy a lot less than they should because the debt that high interest rates attract from overseas has pushed up inflation”. debt is attracted from overseas by two things. One) DEMAND, the money won’t come here if nobody wants to borrow it. Two) a better rate of return than can be achieved overseas, this is the side of the equation where high interest rates are important. High interest rates are used to try to slow demand, which is mainly fuelled by credit in western economies. it is demand, amongst a whole bunch of other factors that fuels inflation, as it is demand that helps push prices up, aka price inflation, hence the idea that $100 now buys less than $100 ten years ago, not to be confused with savings and how much they purchase.

        • KJT

          Of course raising business interest rates beyond that of overseas competitors has no effect on prices and competitiveness. Right!! And interest rate rises of themselves are not a driver of inflation. Right!! And higher interest rates in NZ do not give windfall profits to overseas banks and finance companies. Right!! And lower wages and higher prices do not drive borrowing to live. Right!!

    • prism 2.2

      I presume you’re calling me idiot TR. Your mind seems limited to a few verities – you would fit into Animal Farm well – two legs bad, four legs good sort of thing. Have you read Animal Farm? Did you understand it?

      My concern is that high interest rates as a control on inflation by limiting spending domestically attract the purchase of NZ dollars internationally on a short-term impulsive speculative basis. This hikes our exchange rate beyond a reasonable valuation of the country’s economy. It also means that NZ at the bottom of the see-saw (and the world) doesn’t find as much money sliding down into exporting business pockets as would be if high exchange rates didn’t rule. And the large fluctuations in the NZ dollar make it necessary for exporting businesses here to hedge more, and that insurance is costly to them so putting up cost of doing business.

      That is my point TR based on my understanding of the situation. Have you any intelligent, informed comments to make? You may have been hiding your light under a bushel or perhaps you are an arsonist and have burnt the bushel as you try to burn other people’s reasoned comments.

  3. Lanthanide 3

    Why does he always move the rates by 0.25%? Can’t he do 0.10%, or 0.15%, or 0.30% for a change and shake things up a bit?

    captcha: question

    • Draco T Bastard 3.1

      To “shake things up a bit” he’s not supposed to do what everyone expects him to do but that’s what he just did.

  4. workingjez 4

    Seems the positive outlook the business community and the righties were talking up has evaporated as our big traders look even worse, Australia excepted. Now it looks like we are heading for mortgage increaes, GST increases all at once. With a small tax cut and no wage growth seems like the recession is still hanging on for all its worth. Any ideas what we could differently? cos it seems labour does not have a clue what they should do about from spend money we don’t have…

  5. Zaphod Beeblebrox 5

    High interest rates are great for the our Aussie-owned banks. They can get away with a higher margin and the higher NZ dollar pushes up profits. Now that there is no competition (except Kiwibank until English sells it), they can do what they like.

  6. BLiP 6

    And some new-age economists like to tell us there’s no such thing as a “monetarist”.

  7. Herodotus 7

    A neutral backhanded compliament that nat is on the right track on keeping NZ progressing ecocomically. Just like Blam Blam Blams political commentary There is no….. in New Zealand. How Spit Enz was so right History Never Repeats.
    So all out there doing so well (as per “2degress so who is with me”) no one,
    So if no one is creaming it why doe sthe OCR increase. thasts right to stop any idea of growth

  8. prism 8

    Herodotus Your choices of the best theme songs – really good. Anyone else with clever songs to fit the moment?

    • Daveski 8.1

      See Me Go for Chris Carter 🙂

      • Herodotus 8.1.1

        A very underrate band the screaming meemees, a great pop-punk merger.
        RE CC – How about Gang of Fours – Damaged Goods or Stiff Little Fingers – Gotta getaway (To China?)
        I could not find a suitable song for Alan Bollard giving the bird to the rest of us could pass on Sid Vicious final gesture on My Way video

  9. prism 9

    Great – Any of mine would be dated cf to yours. Thinking of money there is the ching ching one from Pink Floyd but I can’t think of ones to the point.

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