Inflation

It was good to see that there was such a big drop in inflation confirmed in yesterday’s statistics.  I hope that this ensures a further easing in the OCR by the Reserve Bank at the end of the month.  I also hope that this will encourage financial institutions to pass lower rates on to business borrowers.

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4 Responses to “Inflation”

  1. Sally Says:

    Governments’ interference in the markets etc has already left an awful legacy for future generations. Sorry Charles in my opinion you are wrong, I hope the Reserve Bank does not listen to the bank economists and other calls for a cut in interest rates. I believe that Blogger of No Minister is right. (http://nominister.blogspot.com/ “Key et al should read Gold-Eagle” )

    This is what No Minister writes:
    “What can Key and Co. learn from this? First, let the market fail. It needs to fail and resurrect itself. Bailouts are simply a bandaid solution for a broken bone problem. Second, Bollard should raise the OCR by 200 basis points on each of the next two occasions. Cutting the OCR may be a common solution but we are not facing a common problem. If Bollard raised the OCR to 8% we would see massive overseas funds into NZ allowing our banks to lend again. Dropping the OCR is doing nothing because the consumers who wish to borrow cheap money are not able to as their is no money to lend as the banks aren’t lending to each other: there is no money. Raising the OCR would allow lending as overseas investors flood our economy with money. Unusual? Yes. But so is the problem. Third, our politicians should remove the politics from the current crisis. By politicising economics perfectly legitimate solutions may be ignored.

    I laugh out loud when I hear there will be an export led recovery in 2010 due to our low dollar. That won’t happen. I repeat. That won’t happen. Firstly, protectionism will become more common – we are already seeing it in Europe. Secondly, no country in the World will be buying our goods as no country has an economy that can afford to.

    Every forecast Key et al has received has been progressively worse. First, the PREFU was shocking. Then the minister’s incoming briefing was worse than that. And just last week the latest business confidence survey was even worse again with GDP next year predicted to be zero.

    Extraordinary times call for extraordinary measures. Bill English, John Key, Mark Weldon et al must throw the text book out the door on this economy and do some extremely bold and unusual things.

    For starters they should all read Gold-Eagle daily. These guys have been predicting a meltdown for five years (as long as I have been reading the site) and they have been spot on so far. There is no reason to doubt them going forward and their commentary should be taken heed of. “

  2. Ian Llewellyn Says:

    I am very glad that Sally and the No Minister crowd are not in charge of the country or the Reserve Bank.
    We are no where near the stage that banks in NZ have stopped lending, there is still cash here. (Try it, ring up your bank and ask them for a loan to buy a house. If you are not stupid they will offer you money).
    NZ interest rates are already well ahead of other countries, if you need to increase the differential to such a huge rate, then there would be questions about how any borrower would make money on a 10 percent loan (that would be the minimum on an 8 percent OCR).
    Sure money would flood in, but who could afford to borrow it.
    The net effect of what you are suggesting is just a massive increase in mortgage rates, when incomes are falling.
    I think there is a need for some deep thinking about what is happening and how NZ can survive it, but that is not the answer.
    If you really believe that the world will stop buying our goods then lifting interest rates is not the answer. We have to stop exporting and become self-sufficient, but that is not really what you are calling for is it?
    By the way, the inflation figures are not that rosy Charles. The only thing that went down was petrol and if the RB says it has too look things like that on the way up, surely they have to look through them on the way down

  3. Sally Says:

    Ian,
    There’s no easy fix that people are looking for. The solutions to the financial crisis will not come about by tinkering with old measures. What is happening is the destruction of savings and the de-facto nationalisation of economies.

  4. Sally Says:

    Just read this article.
    http://www.businessday.co.nz/industries/economy/4834341

    “Bollard policy has ‘huge collateral damage'”

    A leading economist is calling for greater scrutiny of the Reserve Bank’s “super loose” monetary policy setting, claiming massive shifts in exchange and interest rates are preventing businesses from investing.

    “Mr Kerr expressed his disappointment at successive cuts and with more on the cards, said the outlook for New Zealand was of “real concern”.

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