Reserve Bank admits problem, sits on hands

Written By: - Date published: 1:27 pm, January 31st, 2013 - 14 comments
Categories: Economy, exports, monetary policy - Tags:

Today’s announcement from the Reserve Bank states that inflation is still below its target band of 1-3%. It says:

“Inflation remains subdued and is currently just below the bottom of the Reserve Bank’s inflation target range. This mainly reflects the impact of the overvalued New Zealand dollar. The high currency is directly supressing inflation on traded goods, and is undermining profitability in export and import competing industries. At the same time, the labour market remains weak and fiscal consolidation is dampening growth.

The high and overvalued dollar keeps import prices down so consumers benefit, but kills exporters who must provide for our economy’s future.  That is the main point being made to the Manufacturing Inquiry set up by Labour, Greens and New Zealand First after the Government blocked a select committee enquiry into the sector. The Reserve Bank’s obsession with the very different problems of the 1980’s means that as a country we are eating our seed corn.

The other people who benefit are currency speculators and money market dealers, which explains why so much media comment comes from that sector. The unchanged 2.5% interest rate may be a record low for New Zealand, but it is still well above the 0.0-0.5% in the major financial markets. While the New Zealand dollar stays  high, it is a guaranteed one-way bet for the speculators. The Reserve Bank’s announcement pushed the dollar up half a cent against the US dollar.

But the Reserve Bank doesn’t want to debate the issue with anyone who considers it should run a more balanced monetary policy, as other countries do. We are told the  Governor will address the Canterbury Employers and Chamber of Commerce on growth, followed later by Business NZ. These organisations are the result of merging the old Employers Association and the former Chambers of Commerce, and now mainly represent now domestic business. Expect the same old same old “nothing we can do.”

For a real debate the Reserve Bank Governor should front up to the Manufacturers and Employers Association, who represent mainly exporting manufacturers.

14 comments on “Reserve Bank admits problem, sits on hands”

  1. Lightly 1

    good post but Yyou keep on leaving Mana out of the list on the manufacturing inquiry. And you keep writing Labour first like it was their idea, when it was Russel Norman’s.

    • handle 1.1

      Labour being able to form a viable coalition depends on more grown-up behaviour than this.

    • Tim 1.2

      Yep …. and there’s my current problem with Labour as it stands ‘a.t.m’. Not JUST their inability to disavow themselves of failed neo-liberal ideology, but its attitude. I concede that for a lot of people, the sins you accuse Mike Smith of (above) may seem like nitpicking, but it goes to their attitude and sense of entitlement – often since they’ve decided to make a career out of politics (and I distinguish THAT from political representation of an electorate, and all electorates).
      I’m all for supporting Labour, and as I’ve said before – one of the best things to do for those that don’t like what’s going on with Labour is to become members – it doesn’t commit you to actually VOTING LAbour next time – and nor does it commit you to NOT making donations to parties such as the Greens. One of the best protests would be for Labour to have a HUGE membership but to find that members didn’t actually vote for them come election time
      I’ve been chastised before for commenting on threads from Mike Smith, however there is a ‘theme’ at play here, and its a theme that a lot of people (including myself) are pissed off with ESPECIALLY having supported them through thick and thin over a lifetime.
      Maybe one day they’ll get it. Right now they don’t (and I’m surprised some don’t – such as Robertson).
      Still, I understand how that sense of entitlement comes about. It’s hard to have to admit you’ve become completely out of touch with those that once fawned all over you.
      Good thing is, Key will soon be experiencing such a phenomenon and the outcome won’t be very pretty.

  2. NoseViper (The Nose knows) 2

    Imported goods being low priced because of a high valued currency must seem a good idea for politicians to keep the masses happy and in debt at the same time. Thus giving them an incentive to work the long hours that we have ended up with here.

    But that idea is worn out. People have been shocked into cutting debt and spending is down. The idea of a consumer fuelled economy is a disaster anyway – an indication that there is little else going on in a very flabby economy.

    And as I drag advertising from my mailbox (must get a no advert sign), much of it is flashing that it’s no deposit, don’t pay till 2014 stuff. So the Australian banks lend us money to buy whiteware and technology from Oz stores. And we let ourselves be sucked dry. Meanwhile the Aussies are laughing all the way to the bank, in fact several banks.

    Import licences based on export receipts? How about it??

  3. Lanthanide 3

    I’d like to see:

    1. LVR cap of 85% for mortgages. Could eventually lower it to 80%.
    2. Reserve bank drop the OCR by 1%, offset by the government imposing a new 1% mortgage tax, so mortgage rates would stay at the current levels, but instead of only paying interest to the banks, now the government would get a cut. Make people who own capital on tick contribute to the running of the country.

    • tsmithfield 3.1

      Some good thoughts Lanth. However, there is always the problem of unintended consequences. Firstly many small business owners often use their houses as a source of capital to fund their business. So, restricting bank lending ratios could affect employment.

      Secondly, a lot of bank funding doesn’t come from the RB, but rather from overseas. So, imposing a mortgage tax might indeed increase rates.

      • Lanthanide 3.1.1

        They use their houses as a source of capital because the banks make it so bloody difficult to get business loans. So how about fixing that problem. Adding the 1% residential mortgage tax would help because with a lower OCR, interest rates for other forms of lending could drop. Similarly the LVR would stop the gravy-train for banks and they’d have to expand their other forms of lending to increase their profits.

        “Secondly, a lot of bank funding doesn’t come from the RB, but rather from overseas. So, imposing a mortgage tax might indeed increase rates.”

        How? The OCR would be dropped in return.

        • CV - Real Labour 3.1.1.1

          Also, KiwiBank could be permitted to start playing hardball in the mortgage market place.

      • Draco T Bastard 3.1.2

        Secondly, a lot of bank funding doesn’t come from the RB, but rather from overseas.

        And that would be why bank notes, as opposed to reserve currency, makes up ~95% of money.

        http://en.wikipedia.org/wiki/Fractional_reserve_banking

  4. NoseViper (The Nose knows) 4

    Sounds doable. Won’t get though. Pollies are sooo happy riding round in the BMW keeping the lid on everything in the country – it would be a shame to make waves by making changes, and they would have to explain them to their narrow-focussed (me, me) supporters.

  5. Tiresias 5

    But… but… but… How can the dollar be overvalued? Doesn’t the invisible hand know what it’s doing?

  6. Whistler 6

    Am sick of the ‘overvalued dollar myth’ . It is what it is. Compared to OZ and the US it’s not that high anyhow. Every country’s exports are someone else’s imports. Our exporters want our dollar lower so as to subsidise their commodities. Its effectively stealing from us to feather their nests.

    The same game is played in every exporting country.

    The real answer is to expose the other great myth that exporting is the only way to grow and to aim instead and move towards greater self sufficiency.

    • Draco T Bastard 6.1

      Bingo.

      But we won’t get that as building only to provide for the local market means that the local capitalists won’t have enough income to pay the interest that the banks are charging as well as make a profit.

  7. Fortran 7

    I would accept thet the Reserve Bank start by making the minimum LVR at 75% or 80% as above already stated.
    My first Bank Mortgage was max $15,000 at 6.5%, and second from a finance house at 16%, irrespective of valuation.

Leave a Comment

Show Tags

Recent Comments

Recent Posts

  • Nats’ housing policy fails to keep pace with population growth
    Auckland got less than half the new houses it needed in the past year to keep up with record population growth, says Labour’s Housing spokesperson Phil Twyford. ...
    1 day ago
  • Urgent action needed on dirty rivers
    The Our Fresh Water Environment 2017 report re-confirms that we need urgent action to clean up our rivers. Meanwhile, National is standing by as our rivers get even more polluted, says Labour’s Environment spokesperson David Parker. “This report is yet ...
    2 days ago
  • Where there’s smoke and mirrors, there’s Steven Joyce
    Steven Joyce’s much vaunted pre-Budget speech is simply an underwhelming response to the infrastructure deficit National has created, says Labour’s Finance Spokesperson Grant Robertson. “Steven Joyce has belatedly come to the realisation that everyone else has a long time ago, ...
    2 days ago
  • Time to stamp out cold, mouldy rentals
    New figures show a small number of landlords are letting down the sector by renting cold, mouldy rentals. These houses need to be brought up to a decent standard for people to live in by Andrew Little’s Healthy Homes Bill, ...
    3 days ago
  • Time for fresh approach on immigration
    Latest figures showing another record year for immigration underlines the need for an urgent rethink on how this country can continue to absorb so many people, says Labour Leader Andrew Little. “New Zealand needs immigrants and is all the better ...
    3 days ago
  • Bring back the Mental Health Commission
    The People’s Mental Health Review is a much needed wake up call for the Government on mental health, says the Leader of the Opposition Andrew Little.   “I applaud their proposal to restore a Mental Health Commission and their call for ...
    5 days ago
  • And the band played on…
    Making Amy Adams the Housing Minister five months out from the election is just the orchestra playing on as National’s Titanic housing crisis slips below the waves – along with the hopes and dreams of countless Kiwi families, says Labour’s ...
    5 days ago
  • Hotel no place for children in care
    ...
    1 week ago
  • Maybe not, Minister? Nick Smith’s housing measure suppressed
    Sir Humphrey: Minister, remember the Housing Affordability Measure work you asked us to prepare back in 2012? Well, it’s ready now.Minister Smith: Oh goodie, what does it say?Sir Humphrey: Nothing.Minister Smith: Nothing?Sir Humphrey: Well, sir, you asked us to prepare ...
    1 week ago
  • Inflation data shows many New Zealanders are worse off under National
    The latest inflation data from Statistics New Zealand shows that too many New Zealanders are now worse off under the National Government, said Labour’s Finance Spokesperson Grant Robertson “Consumer Price Inflation (CPI) is now running at 2.2 per cent, and ...
    1 week ago
  • Another emergency housing grant blow out
      Emergency housing grants data released today show another blow out in spending on putting homeless people up in motels, says Labour’s Housing spokesperson Phil Twyford.   ...
    1 week ago
  • Families struggle as hardship grants increase
    The considerable increase in hardship grants shows that more and more Kiwi families are struggling to put food on the table and pay for basic schooling, says Labour’s Social Development spokesperson Carmel Sepuloni. ...
    1 week ago
  • More tinkering, no leadership from Nats on immigration
    National’s latest tinkering with the immigration system is another attempt to create the appearance of action without actually doing anything meaningful, says Leader of the Opposition Andrew Little. ...
    1 week ago
  • Suicide figures make for grim reading
    The 506 suspected suicides of Kiwis who have been in the care of mental health services in the last four years show that these services are under severe stress, says Labour’s Health spokesperson David Clark.   “If you do the ...
    2 weeks ago
  • Pay equity deal a victory for determination and unions
    The pay equity settlement revealed today for around 55,000 low-paid workers was hard-won by a determined Kristine Bartlett backed by her union, up against sheer Government resistance to paying Kiwis their fair share, says Labour Leader Andrew Little. “Labour welcomes ...
    2 weeks ago
  • DHB’s forced to make tough choices
    The Minister of Health today admitted that the country’s District Health Boards were having to spend more than their ring fenced expenditure on Mental Health, says Labour’s Health spokesperson David Clark.   “The situation is serious with Capital and Coast ...
    2 weeks ago
  • Nats break emergency housing pledge – deliver just five more places
    Despite National’s promises of 2,200 emergency housing beds, just 737 were provided in the March Quarter, an increase of only five from six months earlier, says Labour’s Housing spokesperson Phil Twyford. ...
    2 weeks ago
  • Research underlines need for KiwiBuild
    New research showing the social and fiscal benefits of homeownership underlines the need for a massive government-backed building programme like KiwiBuild, says Labour’s housing spokesperson Phil Twyford. ...
    2 weeks ago
  • Social data security review too little, too late
    The independent review into the Ministry of Social Development’s individual client level data IT system is too little, too late, says Labour’s Social Development spokesperson Carmel Sepuloni. “The Minister of Social Development has finally seen some sense and called for ...
    2 weeks ago
  • More questions raised on CERA conflicts
    With the admission that three more former CERA staff members are under suspicion of not appropriately managing conflicts of interest related to the Canterbury rebuild, it’s imperative that CERA’s successor organisation Ōtākaro fronts up to Parliamentary questions, says Labour’s Canterbury ...
    2 weeks ago
  • Labour to tackle Hutt housing crisis
    Labour will build a mix of 400 state houses and affordable KiwiBuild homes in the Hutt Valley in its first term in government to tackle the housing crisis there, says Leader of the Opposition Andrew Little. “Housing in the Hutt ...
    2 weeks ago
  • Farewell to John Clarke
    This wonderfully talented man has been claimed by Australia, but how I remember John Clarke is as a young Wellington actor who performed satirical pieces in a show called “Knickers” at Downstage Theatre. The show featured other future luminaries like ...
    GreensBy Catherine Delahunty
    3 weeks ago
  • Valedictory Speech
    Te papa pounamu Aotearoa NZ Karanga karanga karanga; Nga tupuna Haere haere haere; Te kahui ora te korowai o tenei whare; E tu e tu ... tutahi tonu Ki a koutou oku hoa mahi ki Te Kawanatanga; Noho mai noho ...
    3 weeks ago
  • Buck stops with Gerry Brownlee
    The fact that the State Services Commission has referred the CERA conflict of interest issue to the Serious Fraud Office is a positive move, but one that raises serious questions about the Government’s oversight of the rebuild, says Labour Canterbury ...
    3 weeks ago
  • Teachers deserve a democratic Education Council
    Teachers around New Zealand reeling from the news that their registration fees could more than double will be even angrier that the National Government has removed their ability to have any say about who sits on the Council that sets ...
    3 weeks ago
  • Free trade backers are simply out of touch
    Are the backers of free trade out of touch with public opinion? This was the question asked when the Chartered Accountants launched their Future of Trade study. I was astonished by the answer in a room of free trade enthusiasts ...
    GreensBy Barry Coates
    3 weeks ago
  • John Clarke aka Fred Dagg will be missed by all Kiwis
    The man who revolutionised comedy on both sides of the Tasman, John Clarke, will be sadly missed by Kiwis and Aussies alike, says the Leader of the Opposition Andrew Little.   “I grew up with Fred Dagg and I am ...
    3 weeks ago
  • Labour’s modern approach to monetary policy
    A commitment to full employment and a more transparent process to provide market certainty are the hallmarks of Labour’s proposals for a new approach to monetary policy, says Labour’s Finance spokesperson Grant Robertson. ...
    3 weeks ago
  • Greens back Labour’s plan for monetary policy reform
    Labour plans to change the way we do monetary policy in New Zealand and the Green Party supports them fully. We’re now of a single mind on this. Labour will move away from our reliance on a single, unelected person ...
    GreensBy robert.ashe
    3 weeks ago
  • Greens back Labour’s monetary policy reform
    Labour plans to change the way we do monetary policy in New Zealand and the Green Party supports them fully. We’re now of a single mind on this. Labour will move away from our reliance on a single, unelected person ...
    GreensBy James Shaw
    3 weeks ago
  • Govt drops ball on Masters Games housing squeeze
    Families currently living in emergency accommodation face being forced out onto the street as motel accommodation in Auckland is filled up by contestants and visitors of the World Masters Games in coming weeks, says Labours social development spokesperson Carmel Sepuloni. ...
    3 weeks ago
  • State inquiry for Nga Morehu – The Survivors of State Abuse
    The Prime Minister must show humanitarian leadership and launch an independent inquiry into historic claims of abuse of children who were in State care, says Labour’s Deputy Leader Jacinda Ardern. ...
    3 weeks ago