Home > Dollars & Sense, Social Issues, The Body Politic > Mark this date: 31 January 2014

Mark this date: 31 January 2014

First, a bit of a history re-fresher. This from Dear Leader Key, on 29 January 2008,

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“Why, after eight years of Labour, are we paying the second-highest interest rates in the developed world?
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Why can’t our hardworking kids afford to buy their own house?
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Mortgage rates are rocketing upwards…
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We know Kiwis are suffocating under the burden of rising mortgage payments and interest rates…”

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The latest from the Reserve Bank of NZ, as reported on Radio NZ,

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Reserve Bank governor confirms rate rise

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From TV3,

The Reserve Bank Governor also confirmed that he expects to increase interest rates “soon”, to ensure growth is sustainable in the face of increasing inflationary pressure and an expanding economy.

[…]

“In such an environment, there is a need to return interest rates to more normal levels and the Bank expects to begin this adjustment soon.”

In its December Monetary Policy Statement, the bank suggested the Official Cash Rate will need to rise about 2 percentage points over the next two years.

From TV1,

Wheeler kept the OCR at a record-low 2.5 percent yesterday, while signalling an increase would come soon to damp down building inflation over the next two years.

Today, he said the complexity of the current inflation environment was increased by 40-year high terms of trade, the elevated exchange rate, the reallocation of resources for construction in Christchurch and Auckland, rising consumer demand, increased net migration and the US Federal Reserve’s scaling back of its quantitative easing.

From the NZ Herald,

A rise in the official cash rate in March is nearly certain – barring some meltdown in the global economy – after the Reserve Bank left it on hold at 2.5 per cent yesterday but its accompanying statement displayed all the talons, beak and plumage of a hawk.“There is a need to return interest rates to more normal levels,” governor Graeme Wheeler said. “The bank expects to start this adjustment soon.”

It expects economic growth to continue at a rate of around 3.5 per cent over the coming year, an upward revision from around 3 per cent in its December forecasts, propelled by “very high” export commodity prices and a “rapid” rise in net immigration, on top of increasing construction activity in Canterbury and Auckland.

While a strong dollar has helped moderate inflation, the bank reiterated its view that the exchange rate is higher than is sustainable in the long run.

It expects inflation pressure to increase over the next two years, citing surveyed pricing intentions by firms and rising construction costs.

It is “committed” to increasing the OCR – a semantic upgrade from plain “will” six weeks ago – as needed to keep future average inflation near the 2 per cent mid-point of its target band.

Point #1: As of 31 January 2014,  the RBNZ announced it will be raising interest rates in March this year (barring a catastrophic international financial meltdown).

Point #2: The current government is National, led by Dear Leader John Key..

Point #3: There is likely to be a change in government later this year.

Question: How long will it be before the first right wing blogger, media, commentator, and Uncle Tom Cobbly, blames the new, incoming Labour-led government for interest rates climbing to an expected 7.5% to 8%?

Mark my words; the Right will attempt to shift blame for high interest rates on the next government.

Unless the next government is still National.

In which case, they’ll blame it on the previous Labour government.  This is called “Playing the Blame-Game“, according to right-wing rules.

Are we clear on this?

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References

John Key website:  SPEECH: 2008: A Fresh Start for New Zealand

Interest.co.nz: Bernard Hickey looks at what the Reserve Bank’s Monetary Policy Statement means for mortgage rates and house prices

NZ Herald: OCR stays at 2.5pc – hikes coming soon

Radio NZ: Reserve Bank governor confirms rate rise

Dominion Post: Growth, inflation greater than expected

TV1: Inflationary pressures an important risk – Wheeler

TV3: Economy, inflation growing faster than predicted

Previous related blogposts

Mark this date: 31 January 2014

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Unemployed and Voting in 2014

Above image acknowledgment: Francis Owen

This blogpost was first published on The Daily Blog on 1 February 2014.

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  1. KJT
    9 February 2014 at 10:24 am

    “to ensure growth is sustainable in the face of increasing inflationary pressure and an expanding economy.”

    How, exactly, does rising interest rates do that?

    Rising interest rates ensures that workers share of GDP remains one of the lowest in the world, givers windfall profits to banks, kicks NZ businesses and workers in the teeth with high interest and exchange rates, and attracts even more hot money to push up Auckland house prices. (The very thing they claim they are trying to prevent).

    http://kjt-kt.blogspot.co.nz/2013/05/the-reserve-bank-debt-and-property.html
    In New Zealand we have the “Reserve Bank Act”.

    “Which basically requires the reserve bank to kill the rest of the economy, whenever Auckland house prices, or wages, rise.
    Originally enacted, as a circuit breaker, to cap excessive inflation in the 80’s, politicians have kept it, long past its use by date, because in their limited view, what works once, briefly, will work perpetually.
    It could be argued that it was somewhat successful in curbing very high inflation, on that limited occasion, though others would note that the end of very high inflation ended with the slowing of the rise in oil prices”.

    Excluding interest rates directly from inflation calculations masks the fact that this policy long term does the very thing they claim it prevent.

  2. 9 February 2014 at 11:27 am

    Spot on, KJT.

    Indeed, critics of the Reserve Bank Act have ranged from the left (Jim Anderton) to the right (Bob Jones), who voiced precisely the comments you have made.

    As you rightly pointed out, the RBNZ effectly “kills” economic growth because one sector of the economy (the Auckland housing market) is out of whack with the rest of the country.

    So businesses and workers in Invercargill are having to pay for inflationary pressures occurring 1,200 kilometres away, and which has no bearing on their local economy.

    You’ve hit the nail on the head regarding “hot money” pouring into New Zealand, once the RBNZ pushes up interest rates. This will force up the value of the New Zealand Dollar, further damaging our manufacturing/export sector. (God knows that “Manufacturing showed the largest decline, with 29,472 fewer people employed in this industry in 2013 than in 2006. This was a 13.5 percent decrease” – Source .http://www.stats.govt.nz/Census/2013-census/profile-and-summary-reports/quickstats-about-national-highlights/work.aspx)

    Because of the way our economy is skewed, any economic “recovery” will be a two-edged sword. New Zealand home owners with a mortgage are about to find that out with a very expensive lesson in economics.

  3. Theodore
    12 February 2014 at 4:00 pm

    So because of property speculation in Auckland, mortgage-holders all around the country will have to pay higher interest rates as well.

    Screw you, John Key, for not supporting a capital gains tax!

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