National’s interest rates record

Written By: - Date published: 7:00 am, April 15th, 2008 - 22 comments
Categories: economy, john key, national, slippery - Tags: , , ,

National’s latest line is that interest rates have doubled under Labour, with the implication that National would magically lower inflation (while simultaneously pouring more money into the economy through lower surpluses) so rates would fall. But, as with so much National says, a quick look at the record reveals the lie.


Average Mortgage Rate- Nat: 9.7%, Lab: 8.4%

Interest Minus Inflation- Nat: 7.7%, Lab: 5.8%

When Labour came to power the floating mortgage rate was 7.3%, today it is 10.5%. If that’s John Key’s idea of doubling, it’s surprising he survived two seconds as a money trader.

This interest rate line is just another example of Key’s slipperiness. National’s record on interest rates is worse, their policies are inflationary, and they have no plan on how to bring interest rates down. Key knows that but he’s hoping you won’t think about that.

22 comments on “National’s interest rates record ”

  1. “Interest Minus Inflation- Nat: 7.7%, Lab: 5.8%”

    Hi, there are two things I would like to add to put the numbers in perspective:

    1) Inflation is sticky so in the early ninety’s real interest rates needed to be higher in order to drive inflation expectations down.

    2) Between 2003 – mid-2007 global interest rates were very low, making it easier from banks to source cheap credit and loan it out to people at a competitive rate. This is a global factor, it had nothing to do with the government in charge.

  2. mike 2

    Steve, the point is Labour scaremongered in the 2005 election that Nationals Tax cuts would cause interest rates to rise. Well we didn’t get a tax cut but we got the higher interest rates anyway.
    BTW – are tax cuts not inflationary when labour do them?

  3. Tamaki resident 3

    Glad to see the y-axis starting at 0! Now, how about some horizontal grid-lines!

  4. AncientGeek 4

    mike – I realize that you don’t like understanding economics and the questions of cause and effect. The tax cuts that National was proposing in 2005 were massively inflationary. Inflation sits at the base of interest rates. For some reason banks want the real value of their assets to rise, so they charge a more than inflation. So what you should be looking at is how much higher interest rates would have been.

    BTW: try Brian Easton who now has a website. It is a vast archive of informed comment.

  5. Occasional Observer 5

    Yet again, Steve shows how he is both dishonest and ignorant on economics.

    The graph shows that when National came into office, interest rates were very high. When they left office, interest rates were very low. Contrary, when Labour came into office, interest rates were very low. Now they are very high again.

  6. Phil 6

    Actually Steve, some interest rates have doubled under Labour.

    I point you to another RBNZ website graph; this one showing the OCR and 90-day interest rates. From 4.5% to just under 9% is good enough for most of us to say that “doubling” is legitimate.

  7. AncientGeek 7

    And mike. Tax cuts are always inflationary, whoever does them. That is why they have to be implemented carefully so there are no spikes in inflation.

    The best time is when there are external factors buffeting and reducing economic growth. That is the time for a classic Kenysian intervention. Oh and look at the economy in the US, UK, aussie, and all of our traditional markets right now. Look healthy do they?

    Why do you think that Cullen thinks now is a good time to start introducing tax cuts. There is always a delay before their effect kicks in.

  8. AncientGeek 8

    Oo: ok so Key and the Nats are not dishonest for claiming the interest rates have doubled?

    Look at the graph – 7.3% in 1999 and 10.5% now. It is like so much from the Nats – lousy spinning with virtually no facts, and a complete absence of any coherent policy.

  9. mike 9

    “Why do you think that Cullen thinks now is a good time to start introducing tax cuts.”

    Ummm lets see.. could it be that Labour are miles behind in the polls and its election year by chance?
    This is by far the biggest dead rat swollowed.

  10. infused 10

    Nice piece of spin there AncientGeek.

  11. Ari 11

    Not really Mike- Labour don’t mind Tax Cuts, but they want to be careful about them, not put the country in debt or slash social services to finance them.

    Now, if Labour were scrapping, say, their working breaks legislation for tax cuts, that would be a dead rat being swallowed. But we’re not there yet.

  12. djp 12

    Very good point there OO. We should take into account that National was handed a high interest rate as they came into power in the early ninetys and managed to lower significantly it by the time they left office.

  13. Steve Pierson 13

    Ok my responses:

    a) Yes inflation is obviously sticky and interest rates are partially subject to global forces. But that cuts both ways. You can’t just blame global forces for high rates under National and low rates under labour – just as equally the low points under National and high points under Labour can be attributed to those factors.

    b) Obviously government policy does influence inflation otherwise it wouldn’t be a political issue, it would be like the weather. The issue is whether National’s policies would somehow lower inflation, and thereby interest rates. Their track record suggests not.

    c) It’s not true to say that National inherited high rates that they brought down and Laobur inherited low ones that they brought up. – the bulk of National’s time in power, 1994-1998, rates were as high as they are now.

    d) It is undeniable that interest rates under Labour have been lower than those under National. The core of National’s argument is that they would have lower rates – history suggests otherwise.

  14. Scribe 14

    A simple reading of the graph above says this:

    Interest rates when National came into power were at 15%. When it left office, the rates were about 6.5%. They’re now up to 10.5 after 8 years of a Labour government in incredibly favourable economic conditions (except for the last 12 months or so).

    And as Phil pointed out, John Key’s comment that interest rates have doubled is true for some rates.

    I’m constantly amazed at how some people see a bad news story for Labour as a good news story. Were rose- (or red-) tinted glasses on sale at the Labour conference over the weekend?

  15. Steve Pierson 15

    scribe. That wouldn’t be merely a simple reading of the grpah, it would be a severely mentally sub-normal reading.

    as phil knows, the OCR isn’t the rate that ordinary kiwis borrow at, so its not relevant.

  16. higherstandard 16


    Wish the OCR was the cash rate ordinary Kiwi’s borrowed at, it doea however tend to drive the rate at which ordinary kiwis borrow at.

  17. AncientGeek 17


    Nice piece of spin there AncientGeek.

    (Falls over laughing…) First time anyone has suggested that I spin. Usually they’re complaining about the blunt prose.

    Anyway, all I said to Oo exactly what was in the post with the addition at the start of one of those stupid “have you murdered your wife” questions that some of the kiwiblog more idiotic commenters favour.

    Really what I was asking was – Had Oo actually read the post? Because his points were already covered in it.

    mike’s question was strange – he’d obviously never looked at kenysian economics.

  18. Scribe 18


    What a joke. You try to pass off “average” interest rates under the last two Governments as indicative and then call the simple facts that interest rates dropped drastically under National and then rose under Labour “a severely mentally sub-normal reading”.

    Here’s a hint: If a graph makes your conclusions look idiotic, don’t use it as support material for your argument.

    Have a nice day.

  19. Phil 19


    While the OCR and 90-Day rates are not those at which NZer’s borrow for their mortgages and other debt, they are, as you know, important bell-weathers which have significant impact on other interest rates ‘out the curve’ as well as the interest rates payable on other forms of lending.

  20. Phil 20

    AG, April 15th 8.52 am (waaaay back up the thread)
    “Tax cuts are always inflationary,”

    Not so.

    Tax cuts can quite validly have no impact on inflation (and sometimes even help to lower inflation) if they are implemented at a time when capacity utilization is lower than historical norms.

    If the economy slows in the manner currently being predicted, I personally see no reason why a rolling tax cut program should be inflationary

  21. AncientGeek 21

    Phil: You’re correct.

    But it does require what is effectively a recession with falling consumer demand (to get the reduction in capacity utilization). That looks like what we’re heading into in the external world. NZ is (largely) an open economy so the effects arrive here as well, sooner rather than later.

    Looks like a good time to implement a stimulus like a rolling taxcut program. We look to be in a good position to implementit as well.

    It is the usual problem with any of these economic tools. Do it at the right time and it assists the economy from spiralling out of control. Do it at the wrong time and it speeds up the spiral. A tax cut in the dimensions that were proposed in 2005 would have been the latter causing a even more overheated economy.

    I’ve always been suspicious of the effects of a kenysian stimulus. But that was from the misuse of the 70’s with that interesting stagflation environment that I grew up in.

  22. Occasional Observer 22

    Ancient Geek,

    In yet another example of mindless waffle, you’ve failed to make any conclusive points.

    Fact: The OCR now is twice what it was when National left office, and all the forecasts suggest they will continue at current levels for some time to come.

    Fact: Inflation is now twice what it was when National left office. What Steve doesn’t understand, because he’s an economic pygmy, is that interest rates take eighteen months to have an effect on inflation.

    Fact: When National left office, growth was strong, and had remained so consistently over a long period of time, despite several significant, external economic shocks. Labour’s economic has been moderate, without any external economic shocks, but is now caught up in an inflationary, high-interest rate spiral, which is seeing growth diminish. Multi-factor productivity has been static since Labour took office.

    Fact: AncientGeek pines that tax cuts are inflationary, and ignores the massive elephant in the room that is about to stomp on everybody: government spending has increased at twice the rate of private consumption over the last eight years, and has had a greater inflationary effect than any other player in the market. If you cut taxes, yes, some consumers will spend the proceeds. Some consumers will save. The history of this government is that if you run high surpluses, the Government will be tempted to spend the surpluses. Which is why we’ve seen a massive increase in government spending.

    Fact: private sector spending is generally more efficient, and likely to lead to greater productivity gains, than public sector spending. Which is why despite doubling state sector spending, New Zealand has seen no increase in productivity; we won’t get real growth in productivity until the private sector can play a larger part in the market.

    The only way to do that is to cut taxes.

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