Reserve Bank drops OCR 1%

Written By: - Date published: 9:02 am, October 23rd, 2008 - 30 comments
Categories: economy - Tags:

The OCR is down from 7.5% to 6.5%. That’s an unprecendented cut in one go and further confirmation that we are entering tough economic times. Inflation has been high but the Reserve Bank thinks the increasingly likely global recession will remove inflationary pressure. Keeping the economy going will be the challenge.

30 comments on “Reserve Bank drops OCR 1% ”

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  1. Matt Nolan 1
    23 October 2008 at 9:15 am

    “The OCR is down from 6.5% to 5.5%”

    It is from 7.5% to 6.5%

    IrishBill: Fixed.

  2. randal 2
    23 October 2008 at 9:30 am

    Just heard Phil O’Reilly from BUSINESS NEW ZELAND on radionz express concern at kneejerk reactions from National and the long term effects of their shortsighted policies. Looks like even the business sector is suspicious of the National Party.

  3. Steve Pierson 3
    23 October 2008 at 9:35 am

    yeah, got a bit ahead of myself, eh, matt? 🙂

  4. leftrightout 4
    23 October 2008 at 10:05 am

    If Im not mistaken I recall John Key saying “Interest rates have doubled under Labour”?

  6. travellerev 6
    23 October 2008 at 10:10 am

    Let the party begin,

    This marks the beginning of end of the NZ dollar as we know it and the transition to a global currency. Be prepared for inflation. That money in your pocket? Spend it on seeds and garden tools while it is still worth something.

  7. Matt Nolan 7
    23 October 2008 at 10:21 am

    “yeah, got a bit ahead of myself, eh, matt?”

    Indeed – it is heading there 🙂

  8. vidiot 8
    23 October 2008 at 10:23 am

    “With weaker short-term growth and sharply lower oil prices we now expect that annual CPI inflation will return to the target band of 1 to 3 percent around the middle of 2009. However, we still have concerns that domestically generated inflation (particularly in labour costs, local body rates, electricity prices and construction costs) is remaining stubbornly high.

    Now that’s a bit of food for thought… What can be done to Lower Labour costs ? How can you reduce local body rates ? How can you reduce Electricity Prices ? And Construction Costs ?

    I daren’t suggest any ways of reducing Labour costs, so moving on…

    Reduce Local Body rates – perhaps the Auckland Super City is one way of achieving this ? Maybe less bureaucrats, less over heads, less waste ?

    You could reduce Electricity prices by either reducing demand or increasing supply, but I guess the RMA (& the ETS) puts the kibosh on anything new being built.

    Construction Costs ? RMA clean up, less Local Body influence, less paper work ?

    What can be done ?

  9. Ianmac 9
    23 October 2008 at 10:30 am

    vidiot: that is “fewer bureaucrats.” Must be catching 🙂

  10. Ianmac 10
    23 October 2008 at 10:34 am

    randal said: “Just heard Phil O’Reilly from BUSINESS NEW ZEALAND on radionz express concern at kneejerk reactions from National and the long term effects of their shortsighted policies. Looks like even the business sector is suspicious of the National Party.”
    And remember when John Key was demanding an instant response to Interbank guarantees? Didn’t sound like a clever well informed leader to me. Bring on Rod Oram!

  11. rave 11
    23 October 2008 at 10:35 am

    Trav

    Who wants an over-valued currency to hold down inflation that hits exporters when the Aussie banks got around the OCR by borrowing offshore and fueling the housing boom and consumer spending boom raking off billions in profits? And now these same wildwest banks want those poor buggers who stand to lose their homes to guarantee their offshore borrowing to the tune of $300!?!.

    The big bucks for Pryke is nothing by comparison. Clark’s cheap moralising about Pryke’s pay would be more useful directed at the Aussie banks continuing ripoff of NZers.

    Brian Fallow in today’s Herald makes the case against the wholesale guarantee for the Aussie banks. He says we should greet such a guarantee with “dismay and foreboding”.

    At the very least Labour should be pressured into such a guarantee and offering the option of Reserve Bank loans to these banks with heavy oversight. Myself, I think there is sentiment out there for the re-nationalising of the BNZ and ASB and let the rest of them suck on their Aussie parents.

  12. Lampie 12
    23 October 2008 at 10:42 am

    Rod Oram!

    Must check out his next Unitec lecture

    here’s a pet project for someone, looking at this net migration thing, highest since 1989. hmmm was National ahead in the polls then?? as well as in 2008??? hmmm coincidence??? Wonder what is was like with all election years, polls and so forth, wonder if there is a relationship.

  13. rave 13
    23 October 2008 at 10:42 am

    ‘ Should be “$300 BILLION

    and

    “Labour should NOT be pressured into such a guarantee”.

  14. DeeDub 14
    23 October 2008 at 10:51 am

    vidiot: “You could reduce Electricity prices by either reducing demand or increasing supply, ”

    Ahem!!! (Clears throat loudly!)… or fully re-nationalise the electricity sector and take the profit motive out of the equation.
    Funny that you omitted that option?

  15. Draco T Bastard 15
    23 October 2008 at 11:01 am

    Brian Fallow in today’s Herald makes the case against the wholesale guarantee for the Aussie banks. He says we should greet such a guarantee with “dismay and foreboding’.

    One of the few times I agree with him. When you loan out money you take the chance that you’re not going to get it back. This is a fundamental aspect of a free-market economy and is definitely one of the places where the government should stay out of it. It’s not up to the tax payer to guarantee profits for the few.

  16. NeillR 16
    23 October 2008 at 11:01 am

    So the chickens finally come home to roost.
    However, we still have concerns that domestically generated inflation (particularly in labour costs, local body rates, electricity prices and construction costs) is remaining stubbornly high.
    This is BollardSpeak for “Labour’s spending plans are totally out of control and i’ll have to raise rates again if they get back in”.
    Let’s look at them:
    Labour costs Raised the minimum wage rate without a consequent increase in productivity, therefore inflation goes up.
    Electricity prices Three of the four generators are SOE’s and have had to increase their returns to that Cullen could pay for his trainset.
    Construction costs Labour has refused to accept that the RMA adds significantly to the cost of construction, but has allowed councils to use it as a blocking tool to massively increase prices for residential development. I’ve heard stories of fees going from $15k to around $100k in the last 3-4 years.

    Yet only National proposes to do anything about this – Labour (and Cullen) are quite happy to let inflation run rampant, because t(he)y know that the fiscal drag effect allows them to pay for their ruinous schemes. He is no different to Muldoon, and there will be no different outcome – the country is going broke.

  17. randal 17
    23 October 2008 at 11:07 am

    just look at all the imported motorbikes running round the country on Sunday while the geeks fulfil their destiny and you can see where all the money went. Boobies on bikes indeed!

  18. Ianmac 18
    23 October 2008 at 11:08 am

    Lampie: Agree. Funny that the numbers of people apparently heading for Australia is increasing in spite of the polls showing a complete victory for National. Posted that as observation on the Colin Espiner blogsite where some strange posters were really screaming about how great their National victory would be. Silence in response.

  19. vidiot 19
    23 October 2008 at 11:14 am

    DeeDub – so dare I ask:

    Where do the Greens expect this power to come from for the Electrification of the Auckland Rail Iines ?

    We have the generation assets in place today (that are State owned) with the capacity to meet this increase in demand, however the RMA (and other bollocks legislation) don’t permit or encourage them to run either at peak efficiency or full capacity.

    Case in point, Huntly. It can draw water off of the Waikato River for Cooling, but can not put it back in to the river at over 25 degrees C. Now how does one generate power in Summer @ Huntly when the temperatures at the River inlet system exceed that (25 degrees C) before they actually try and use it to cool the plant ? A) They don’t, Huntly effectively shuts in Summer, ergo 1300+mw of generation goes awol (17% of NZ’s generation capacity)

    And let’s not talk about what they use to power Huntly either, Gas or Coal, or them Greenies will come looking for ways to completely close that plant down.

    And as for nationalising the generation assets again, it would never happen – however why can’t the 3 existing State SOE’s (Genesis, Mighty River, Meridian) all join together as one (reduce the top heavy management structure, merge resources, etc) and save some money / compete against the likes of Contact, Trust Power, etc.

  20. Lampie 20
    23 October 2008 at 11:16 am

    yeah I just find it ummmm uncanny, would be interesting to see, even further back in the 70s (when they started correct?) and see if there is a relationship hence Muldoon’s famous quote of raising the IQ of both countries. Funny how when National looks like winning (2005 would be interesting) or just got in that people are leaving in droves!!!!!!

    bit quiet today, maybe I will have a look

    “This is BollardSpeak for “Labour’s spending plans are totally out of control and i’ll have to raise rates again if they get back in’.
    Let’s look at them:
    Labour costs Raised the minimum wage rate without a consequent increase in productivity, therefore inflation goes up.
    Electricity prices Three of the four generators are SOE’s and have had to increase their returns to that Cullen could pay for his trainset.
    Construction costs Labour has refused to accept that the RMA adds significantly to the cost of construction, but has allowed councils to use it as a blocking tool to massively increase prices for residential development. I’ve heard stories of fees going from $15k to around $100k in the last 3-4 years.

    Yet only National proposes to do anything about this – Labour (and Cullen) are quite happy to let inflation run rampant, because t(he)y know that the fiscal drag effect allows them to pay for their ruinous schemes. He is no different to Muldoon, and there will be no different outcome – the country is going broke.”

    Bullshit or as Key would say “market forces”

  21. Draco T Bastard 21
    23 October 2008 at 11:17 am

    Yet only National proposes to do anything about this…

    And increase emigration because people would otherwise be starving to death on wages that don’t cover the minimum cost of supplying labour.

  22. NeillR 22
    23 October 2008 at 11:36 am

    Nice try boys, but wrong. With no incentive to get off the minimum wage there is no chance of decreasing inflation due to the unproductive increase in said wage.
    For instance, there are only so many ways you can flip a burger, MacDonalds has spent years making the most efficient burgers on the planet, so if the labour cost input rises then the cost of that burger has to rise proportionally – which has occurred. There’s no way of escaping it no matter how much you stick your fingers in your ears and scream “lalalalalalala”.

  23. Ianmac 23
    23 October 2008 at 11:40 am

    Are there not statistics which show that about 98% of RMA applications pass without dispute?

  24. Matthew Pilott 24
    23 October 2008 at 11:47 am

    Vidiot, under the Evil RMA, about 1,700MW has been consented, and there’s another 3,000MW under appeal or awaiting consent. NZ’s total capacity is only about 8,000MW so you can hardly say it’s holding generation back.

    Some info is here.

    Your case in point, Huntly, is a good example. 25+ degree water is getting beyond the survivable range for most aquatic life, apart from algae and weeds. There’s a reason behind that regulation – do you think it’s been put in for fun?

    NeillR, no one has their fingers in their ears. If it’s anyone it’s you, because you’re talking about pressuring and impoverishing (if that’s a word) people in order to escape inflation. I know which is worse – even if you can ignore the consequences of what you’re suggesting.

  25. vidiot 25
    23 October 2008 at 11:47 am

    So NeillR what you are saying is, that in the mid/late 80’s you could buy a pie (from Georgie Pie, may they RIP) for $1 (and the staff were paid $4.25 an hour, yes I worked for them) and now with the min-wage @ $12 odd, the same pie would have to be sold @ $3 to cover the labour cost ? It’s either that or they have to sell a bulk load more pies, or worse make them out of ‘offcuts’ (snout & hoof) like the Aussies do, to bring the production costs down.

  26. vidiot 26
    23 October 2008 at 12:01 pm

    25+ degree water is getting beyond the survivable range for most aquatic life, apart from algae and weeds. There’s a reason behind that regulation – do you think it’s been put in for fun?

    What they want to protect the Waikato Koi Carp ?

    Hell why not allow them to output it at much higher levels, and pump that direct to the Hunua treatment plant instead ? Could be self treating Water, vs the Tuakau (built for emergency use only, ok sorry we got that wrong, it has to run all the time because plant is not designed to be stopped & started) filtration plant.

    Simple solution to both issues, but alas, nothing is ever thought out.

  27. Lampie 27
    23 October 2008 at 12:05 pm

    so if the labour cost input rises then the cost of that burger has to rise proportionally – which has occurred.

    Gee clap clap, hmmm and if other overheads increase then the burger must remain the same cost?

  28. Killinginthenameof 28
    23 October 2008 at 12:19 pm

    “NeillR

    With no incentive to get off the minimum wage”

    Pfft, nothing like ya know, more money?!

  29. Lampie 29
    23 October 2008 at 2:57 pm

    Ianmac

    Bugger no luck, all I can find is 2007/08 from the Stats dept 🙁

  30. travellerev 30
    24 October 2008 at 1:14 pm

    Rave,

    Nationalising the banks would be my sentiment too.

    F*&k bailing out the banks and let’s make sure nobody has to loose their home to these bloodsuckers.

    And now Alan Greenspan tells us he is shocked at the banksters greed and may have been just a teensy-weensy bit wrong about having the most greedy people let loose with the unregulated credit default swaps.

    To have this man who time time and again opened the money tap for yet another bubble tell us that he honestly believed that the banksters would not abuse this opportunity is just beyond the pale.

    Hell, If you believe that you’ll believe anything and I’ve got a rainforest in the Sahara desert that just so you.