There was a time when the run-up to a Reserve Bank (RBNZ) Official Cash Rate review prompted debate about whether the rate would be increased, stay the same, or indeed be reduced. Well, we don't have such debates anymore.
Now it's all about whether we are going to get large - or extra large - rises.
Economists at the country's five biggest banks have all pretty much settled (with definitely some doubts expressed) on the RBNZ raising the Official Cash Rate by 75 basis points in what will be the last rate review of the year on Wednesday, November 23. Any rise bigger than 50 points will be a record although there have been much bigger drops.
Here's the background. The OCR is currently on 3.5%. It's been hiked some 325 basis points since the beginning of this 'cycle' in October 2021.
This year alone the OCR has been increased 275 basis points, which is already easily a record amount in one calendar year - with more to come.
The last five OCR reviews have each seen 50 basis-point hikes. So, if that cycle is to be broken this time then the most likely reason will be because the RBNZ has decided to go even BIGGER.
In a previous OCR preview article in October I actually suggested - more fool me - that the very long gap between the final OCR review of this year on November 23 and the first of next year on February 22 might (on this occasion) actually work to the RBNZ's advantage. Time to sit on the beach and contemplate and all that.
However, and this is how quickly these things have been changing, my comments were made at a time when the RBNZ's collective body language suggested some comfort on the part of the central bank that it had the inflation situation in hand in terms of an easing of pressures ahead.
The shock 7.2% CPI inflation figure as of the end of the September quarter obliterated any sense of comfort. Then there were the September quarter labour market figures. White hot. Job market tighter than tight and wage rises heading towards double digit percentages.
The results of the RBNZ's own latest Survey of Expectations were therefore suitably distressing reading too. Any sense of confidence out there that the RBNZ has this inflation thing under control has been severely knocked.
So, for the RBNZ that three month gap between OCR reviews is suddenly looking very long and uncomfortable. There will be no quietly contemplating an apparently under control anti-inflation drive now. In the RBNZ's own manner of speaking, it will be 'watch, worry and wait'. It will be about setting the OCR at the 'right' level for the summer months and then crossing fingers that things move in the right direction between the end of November and late February. Get the setting 'wrong' for the next three months and things could get difficult.
In terms of getting the 'right' OCR setting for the summer there's actually two components the RBNZ needs to juggle - there's the physical level the OCR will be set at and there's the level of the 'future OCR' as decided by the RBNZ's forecast of where the peak will be for the OCR.
This review on Wednesday 23rd is the full bells and whistles one that comes with a Monetary Policy Statement MPS (the last one of these was issued in August). So we will have all manner of projections and explanations available. In the August MPS the RBNZ forecast the OCR peaking at 4.1% in the middle of next year.
Now that's already completely out of date. At time of writing the wholesale interest rate markets are 'pricing in' a peak OCR of around 5.1%
So important has the RBNZ's future guidance on the level of the OCR become that arguably whatever the central bank puts as the expected peak for the OCR in this latest MPS (and when that's expected to be) might carry MORE weight than whatever the actual increase to the 'real' OCR is. Really.
The RBNZ therefore has to set a future OCR 'track' that will keep the right sort of tension in the interest rate markets. This has to be balanced with whatever the RBNZ decides to physically do to the OCR in the coming week.
If for example the RBNZ were to raise the OCR by 75 points to 4.25% on the 23rd, but only raise its OCR forward 'track' to a peak of 4.5%, you could expect to see wholesale interest rate markets quickly slackening.
But logically, if the OCR does hit 4.25% in the coming week it's difficult to imagine the RBNZ producing anything less than a new 'peak' forecast of 5%. Such a level would probably see pricing levels continue in the markets much as they are at the moment.
What, however, if the central bank bites the bullet and suggests a new peak of 5.5% or higher? That would be interesting. The much talked about market expectations of a 'pivot' from sharply tightening of monetary policy to more relaxed settings would be pushed into the future and reasonably meaningful retail interest rate moves - both for mortgages and term deposits - could be expected. Any suggestion the OCR could get as high as 5.5% will definitely fuel fears of the dreaded 'hard landing' for the economy.
This really is a pretty crucial time. OCR reviews haven't got much bigger than this one in terms of importance and impact. And somehow, I have a feeling it won't disappoint as an event.
So far through this hiking cycle the RBNZ has kept pretty much in line with market expectations in the size of its OCR moves - albeit that it has often set those expectations itself. The markets understood early on (last year and early this year) that the RBNZ would be moving the OCR up in 25 basis-point increments. Then it was understood that bigger moves - 50-pointers - would be on the agenda.
And then in its last OCR review on October 5, the RBNZ explicitly stated that it had seriously considered raising the rate by 75 points. Now that's the most common expectation for the size of the rise on Wednesday 23rd.
Consider this though: Since the October 5 review we've seen both inflation and labour market figures that were way hotter than expected.
My question then is, will it be enough for the RBNZ to hike the OCR on Wednesday by the 'expected' amount?
Look, I can tell you what would happen - there would be minimal market reaction, banks will move up their floating mortgage rates by the amount of the OCR hike and will take a careful look at how much they might raise fixed rates. They are definitely getting more cautious on this as fixed rates start climbing above 6%. Likewise banks will be cautious about raising term deposit rates.
There will then be much talk about the RBNZ beginning to 'pivot' early in 2023 to a more relaxed monetary policy position.
Is this the market reaction the RBNZ wants and would be happy with right now? Or does it feel still too far behind the inflation eight ball at this stage?
I still think this inflation battle is going to be much more drawn out than anybody wants to believe.
As I have noted before, the RBNZ under Governor Adrian 'shock and' Orr has shown a penchant for wanting to catch the markets 'off balance' sometimes, in order to cause an outsized reaction. Perhaps the most classic example of that was the shock 50-point cut to the OCR made in August 2019, which caught the wholesale interest rate markets and the Kiwi dollar on the hop.
Up to this stage of the current hiking cycle there's been no point and no value in catching the markets off-guard. It has in fact been to the RBNZ's advantage to have the markets singing along to the same tune as the central bank. This would all therefore suggest a 75-point move on Wednesday.
But we are at a crucial point - particularly with some of the 'pivot' talk around. Maybe the central bank doesn't want an 'as you were' market reaction this time. If the RBNZ's really worried about not having the inflation situation under control, and with a whole three months to the next OCR decision, well, it just might see value in creating an over-sized market reaction this time with some 'shock and Orr' tactics - in order to force market interest rates higher, at least in the short term.
That's why I'm still not ruling out the possibility of a super-jumbo 100-point hike. That would certainly send everybody off to the beach reeling...
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
118 Comments
Sorry but the RBNZ will only go 50bps. Total hiking this cycle already matches the 2004/2007 record hiking cycle of 3.25% - note it took 3.5 years. This 3.25% hiking cycle has taken just over 1 year giving many in the market no time to adjust. Why hit the wall faster with a larger increase in the OCR than anything they have delivered previously? Governor Orr will chose to maintain the pace rather than up it at this time. As for a 100bps hike - he would not wish to be seen panicking so that is totally out of the question.
Where is this idea of "returning to normal" or thinking that the "average" interest rate can tell you anything coming from?Interest rates and bond rates have been on a downward trend from about 1988 due mainly to globalisation, demographics and technology.
If you believe interest rates are mainly a function of bond market (and central bank) inflation expectations then aren't all interest rates at any give time "normal"?
With 35 years of globalisation and demographics changing infront of our eyes, then how can that change be considered a return to "normal". Is it not quite "un normal"?
No. They were a response to what was believed at the time to be a massive once in 100 year deflationary event, 30% unemployment, massive bankruptcies etc etc. Ultimately economics is pseudo science mumbo jumbo and is thus not very good at predicting the future. So in retrospect monetary conditions can be looked back on as too loose or too tight.
IMHO "Average" interest rates are cherry picking 101. I'd be very suspicious about any argument using them. Willing to hear any alternative view on that tho....
I am not sure it makes sense to try to pick a 'normal' for the ocr... in fact the belief that a super low ocr was becoming ' normal' for many countries has caused the debt explosion and risky asset bubbles.
Far better to think of it as a ever changing number that could suddenly jump to 10% (say if saudi/the east had a massive sudden fall out with the west and refused to supply oil) or could drop to 0% (say we have a pandemic ).
If everyone understood that that black swan events can shift the borrowing costs very quickly within what ks actually a large range might prevent asset bubbles again.
My pick is that it will get to about 6-7% by end 2023 then probably drop back to around 5% by end 2027 and stay there for 3-5 years (til we forget why we kept it higher). There will be a very long and medium recession and nz house prices will drop to maybe 50-60% of peak (in real terms) but with very high risk of some major businesses, banks and currencies failing (re the dodgycoin lot last week) which will cause more fallout and prolong things.. bacuase the boom got too big and many are over leveraged.
I like that "ever changing number" and the point about black swan events. This is the first "black swan event" where I have been old enough to pay attention or be interested. Oil shocks, stock market crash, dot com crash, were all in the background for me. I'll take on board your and spacecadets points. I'm sure another one or two will be along in my lifetime.
Therein lies another point. When the RBNZ crash dived the OCR in reaction to Covid it had already been lowered to the point that any stimulus thus provided was spent. Whoever had reason to borrow and were in a sound position to do so, had already done so by then. What came next was tactless, thoughtless encouragement to taking on debt for purposes of little substance and viability. The RBNZ, in reality, was simply flogging a dead horse
Appreciate your point being "not about the amount of hiking in this cycle, it's about the actual rate". It is about the speed of the hike relative to previous rates that people were used to. For too long people were used to rates only falling and a record low OCR of 0.25%. This has now reversed in a shorter period than previous seen meaning the ability to adjust to the changing landscape, with high debt levels, is limited. Keeping steady increases going is the plan and changing the plan at this point will only introduce more uncertainty which the Governor will want to avoid.
Agree it will only be 0.5%. Reasoned purely on the politics & personalities involved & not what the economy & nation actually requires. Anything greater than that will signal acknowledgement they went too low, too soon and too long and that they are now in a bit of self baked panic.
Said it should have been 100 for like the last 3 reviews, didn't happen. Orr made a few long range predictions and statements and refuses to change no matter what as it would make him look like he was wrong. Expect another 50bps rise this week but anything is possible next year.
Lol.
They are on an easy ride. The mainstream media goes with whatever they say.
As long as Orr and Robertson blame the same thing nobody challenges them.
Wait til next year. House prices will bomb. Inflation will be raging. They will keep on raising the ocr in tiny intervals and blame ukraine and trump and xi and anything else thats around to blame.
Tvnz and the herald will print what they aaiid with a small article about luxon and seymour disagreeing about it. 90 % of the population will scroll past both articles and read the one about dancing with the stars.
Everyone will nod and be sad they cant afford to eat. Switch on the tv and vote labour again.. maybe if luxon tells some better jokes, sells his investment property portfoili and gets a personality transplant he has a chance.
The reality is that Orr gives bits to the media to hype them for a 75 basis point hike and then will come out swinging with a 50bp hike stating that he is curbing inflation while thinking about the businesses in Aotearoa and how hawkish he is on this. He will Then go on to say this quarter spend is higher as expected for Christmas and he should start seeing households tightening the wallet strings first quarter next year.
Similar to Jacinda giving tit bits to the press and revs us for an extraordinary announcement only to give a tapered announcement and questions can only be posed by “accredited press”.
Im picking 75 points. I am still seeing price rises in food every week. 2 items I buy that were in price rollback which has just ended are up 20 and 30% this week. Recent consumer spending stats and strong wage growth cement it at 75 points for me. And this is last review for nearly 3 months. I dont rule ot 100 points. The NZ/USD markets moved to a NZD/US differential over the last 10 days.
The most important thing that we can to to fight inflation is avoid the criminal scalpers that operate the "Countdown" chain of supermarkets.
When you make the life mistake of shopping at "Countdown", the only thing being Counted Down is how long until you will have no money left.
Why an OCR of 5.5% will create a hard landing? The economy and job market is going fine. If interest rates are increased, it will bring price of land down and it will allow more people to borrow and build. The economic activity will increase.
With high land prices, people are waiting on the side as it's just doesn't make sense to buy it.
So increase by 100 bps and bring the normality to market. Inflating prices never helps anyone and land prices are really inflated in the country at the moment.
If interest rates are increased, it will bring price of land down and it will allow more people to borrow and build. The economic activity will increase. (Emphasis added).
Huh? I don't understand how increasing interest rates will allow more people to borrow. Is this typo or am I a dunce. 3 upticks makes me think I'm the dunce but...
Land is not going to go down in price, haven't you heard ? They aren't making any more of it. Some cheaper land will pop up for sure, that with higher travel distances to the CBD, after all most of the existing stuff that is closer already has a house on it. Cheaper land further out that then needs a more expensive house built on it with rising rates so its a lose lose situation.
Higher the interest rate, lower the inflation. More money in hands of many than just the few.
Price of every investment comes in the range where it makes sense to invest.
Price of land is inversely proportional to interest rates. And all economic activity happens on land. No one builds or grows anything in the air.
Make land affordable and they will come.
Even if land is cheap, building usually requires a mortgage, especially with build costs so high. And with sky high interest rates, that means not many can afford the mortgage. So instead you will have deflation as the value of mortgages held over land become more and more tenuous. That will be a bigger player. Towards the end of the deflationary cycle you will see interest rates drop and people start to build again.
Interesting points. The problem though is if you keep hiking the OCR and land values continue to fall (they have already fallen quite far in Auckland), then once interest rates start getting cut again the whole silly game will start all over again.
Maybe, though, just maybe, all the high density rezoning imposed by the government will mean there is far less of a bidding war for development sites in the next cycle? If so (and we won’t know for a few years), then in hindsight we might offer praise for the current government on this specific policy initiative.
AUP is the work of National and ACT. Credit where it is due.
We are near peak interest rate and the next moves are probably being priced in to expectations. Market is down but firming and holding up.
Developers are scrambling and readjusting to the new environment. And some are offloading excess stock. Is now the best time to buy??
Rubbish. Building housing in and off itself does not create ghettos.
And on the carparking, yes developers do not need to provide parking and can choose not to. This means someone who doesn't want to drop 50K on a carpark doesn't have to. It doesn't mean they will provide none. The experience from Lower Hutt which were the first to remove minimums is that there was a mini flurry of a few developments not providing parking then developers realised that the market was actually willing to pay for some parking and started providing some. All that happened is that people were not forced to oversupply parking and some people were not forced to buy parking they did not need. Market forces at work. The removal of minimum parking requirements just takes the decision out of the hands of a council bureaucrat who just refers to a formula that was compiled over 50 years ago and has no real idea how much parking each development needs to provide. I know this, I used to be one of those bureaucrats for a short time a long time ago. I work with them almost every day.
once interest rates start getting cut again the whole silly game will start all over again.
Implies the way for this not to occur is keeping the OCR higher AND perhaps somehow getting a better metric to get house prices a bigger % in how RBNZ measures inflation.....
Also DTI, The mere introduction of DTI may cause a lot of property owners to realise the best bids they can get are limited by DTI calcs and accept the reality of the offers around.
Either way brace for impact, this landing is going to be bumpy.
Scam alert!!!
The snake oil salesman known colloquially as "Combover Tony" has again been spreading his latest litany of lies in the tabloid rag "Stuff" under the false guise of "expert".
The way his latest schtick goes is that there is only 5% left in the crash and therefore it's only fit and proper that his marks rush out to catch a falling knife and buy houses. They need to "be quick!" for reasons that are never fully explained, but in reality have a lot to do with desperately trying to save cratering investment property portfolios and estate agent commissions.
No matter how wrong slick Tony is shown to be, he is never held to account by the main stream media who obediently regurgitate his latest con-story without critical examination. Less than a year ago he was luring his victims with falsehoods about the market increasing 5% in 2022. His ruined victims are now learning the hard way how that one worked out.
We know that Orr is going to be forced to further punish the bloated property market with massive rate increases. The mortgagee sales have barely even begun, but will increase as fixed terms come to their conclusions. The fantasy of only 5% left to go is going to seem like a distant dream as the nightmare continues to unfold and the spectre of the worlds greatest property bubble is exposed for what it truly was.
Be vigilant. Record the false predictions. Record the dates. Warn your friends and alert the authorities. Demand that these self professed "experts", for once, are held to account and are forced to disclose their vested interests as a health warning next to their so-called "advice".
The web of shady arrangements between the real estate industry, their useful idiots and their MSM mouthpieces must be exposed.
It's not just Tony the Comb, either. Here's Stuff's Senior Business Journalist Miriam Bell this morning to let us all know why now is such a good time to buy a house:
https://www.stuff.co.nz/life-style/homed/real-estate/130478701/five-rea…
Excellent diligence there Chebbo.
What "Stuff", of course, has failed to prominently disclose as a health warning on the article is that Bell is the former editor of the New Zealand Property Investor magazine.
Those with the mental faculties for critical thinking might go on to ask themselves... Am I being exposed to fair and balanced journalism from this media outlet?
The puff piece then goes on to ask an old boys network of vested interests consisting of:
1) The CoreLogic guy
2) The real estate cartel spokesperson
3) The serial spruiker "economist"
4) The mortgage "advisor" (broker)
... if now is a good time to buy a house. Quelle surprise, the answer is of course a resounding yes!
Regurgitation of vested interest propaganda without critical examination is not journalism. It's public relations to manipulate and defraud the general public.
if now is a good time to buy a house. Quelle surprise, the answer is of course a resounding yes!
Steady on there fella. Stuff starts its article with a video captioned "CoreLogic head of research Nick Goodall describes some of the things that could make the property market downturn worse."
Only from there do the experts do the cheerleading.
Here's a choice quote taken from Alexander's latest piece on OneRoof:
The only real reason there is downward pressure on house prices on average at the moment is because interest rates are at above average levels
That has got to be borderline criminal. People have been censored, cancelled, chastised, and publicly dragged through the coals over much less recently.
Economist Tony Alexander says that even though prices currently remain about 26% above where they were pre-pandemic, incomes have gone up. House price falls mean affordability has improved. This, combined with price falls, means affordability has improved, he says. “The overvaluing of property which occurred is disappearing, and leaving buyers with cheaper options.”
Of course this is only true if you happen to pay cash, if you take a mortgage out its not going to be more affordable than even peak prices.
Great posts Brock! These individuals first need to be called out then held to account for their BS. Speaking of which, Tim "ONZM" (the price fixer) needs constant and ongoing monitoring of his activities too. No apology was ever forthcoming for the damage he caused.
100%. Stuff is devoid of ethics in all regards (which makes their self-congratulatory begging for donations to "fight the good fight" even more tedious). NZ Herald no better of course.
I'll keep browsing for the headlines, but only with the most robust of ad blocking in place to ensure I'm not contributing a cent.
Stuff ran an excellent article today by Charlie Mitchell about " hyper-ageing " ... it seems that if more than 20 % of a town's population is 65 years or older , it's deemed to be a hyper-ageing town ... he gives Thames as an example of this ...
... worth a read ... IMO ...
It reminds me of the paper by shamubeel eaqub on "zombie towns" in structural and economic decline. That was 2014, how wrong he was. On reflection shamubeel aka The Sham has been wrong about many things but still goes about merrily.
Much like a few others on interest.co that do the same.
Just a lot of hype and hypocritical venting here from Brock. I asked Brock about the property he bought in aussie and he reckoned that was insulated from falls and its only NZ that will be grossly affected. Completely blinded by his own vested interest he overstates one and understates the other 🐗🐖
100 bps will spike the NZD....at a time that NZ needs exporters bring in money.
Throttling NZ internally is one thing but crushing real income is another thing.
NZ is a woke, precious country that does not encourage productivity.
Somewhere, someone has to see that NZ needs real new income.
Unfortunately NZ is mostly lead and influenced by bubble dwelling Hobbits.
NZ is a woke, precious country that does not encourage productivity
Milk powder doesn't care about pronouns and hate speech laws. And the farming sector is relatively productive.
Can we not have the bubble and vibrant exports too? Just sell more. You know, because, like us, our products and services ere exceptional.
We cannot have a bubble and vibrant income earning exports when carbon credits and Greenfield sprawl are worth more than sunshine derived energy conversion from our productive soils. Yes, farming is productive but they are not being encouraged....pine forests and the good life are encouraged.
We cannot have a bubble and vibrant income earning exports when carbon credits and Greenfield sprawl are worth more than sunshine derived energy conversion from our productive soils. Yes, farming is productive but they are not being encouraged....pine forests and the good life are encouraged.
Well played BeeBop. I was playing devil's advocate and you seem to have summarily shown the contradictions of where we're at.
If Mr Orr think that by going soft and not doing what he is suppose to do or should say undo the blunder commited by him and his gang, can sit on the beach and relax is mistaken.
If does not act now should be ready to face......and go down in history.....
Fed will be at 4.5% by end of 2022.....where does he want RBNZ to be !
CAUTION: Jumbo-sized Official Cash Rate hike ahead!
David, caution could be both side.
CAUTION: What if Official Rate hike ahead is just 0.5%!
All good and reasonable thoughts, and all valid.
But let's not forget one big thing....
The RBNZ could come out this evening and announce an OCR change if it saw fit. Or next Wednesday or on Christmas Day.
Whilst there are regular reviews and announcement, a change to monetary policy and settings can be done at any time. Whatever the coming review brings, if 'things' unexpectedly go one way or another before the next one, the RBNZ can alter the settings instantly.
If I had to bet, I’d put my money on a .50 rise. They’re still more scared of panicking the housing market than they are of inflation, deep down, and if they’re really committed to not changing anything until their next scheduled meeting (which is stupid but seems to be true) I think they’ll have more fear of being caught out by other CBs’ softening than fear of being left behind as others hike. The financial orthodoxy is still that inflation is transitory and CBs will have to stop hiking any day now. I think they’re wrong, but I also think that’s what the RB will be hearing in their bubble.
Perhaps. Inflation punishes all, especially the retired...who all vote, all the time. Mortgage rates just effect the part of NZ that are over leveraged on housing. The latter is a much smaller voting block.
If the Govt chooses housing over the bulk of the population, you have to wonder about the independence of our democracy.
And....let's ask yourselves, again, "Why is the RBNZ hiking rates?"
If it's "to control Inflation", then the current strategy of 'progressively' may not be the way to go. Short, sharp, and hard will do that for us and get it out of the way.
But… If it's to fundamentally change the financial and economic settings that are going to take us forward for another "40" years, then what is happening at the moment looks about right. If so, there may be a lot further to go, on both the monetary and fiscal fronts, than we care to see.
Problem we have is we are slightly out of kilter with the Feds cycle (going 75bps last hike would have nailed that). Im picking the Fed will ease off with its next hike (50bps) therefore we would ideally need to go 75bps with this but the further problem is the downtime between the next review. The smart move might appear to be go 100bps but that would be akin to using a sledgehammer to crack open soft shelled peanuts . I think 75bps could carry too harsh a bite with it but it would seem the logical move . The safe move would be 50bps even though it will likely push us further out of where we need to be when the Fed Hikes and they will hike. As unlikely it is that the FED goes 25bps this next round it is possible the round after . My pick another 50bps and I base this on recent NZD movement and past RB moves...my 10 cents....lol
https://www.oneroof.co.nz/news/42657
When the headlines warns of Jumbo Size rise in OCR, does Jumbo Sizes stands for 0.75% rise as everyone is expecting or more than 0.75%.
I'm almost certain Jumbo size refers to the diameter of Adrian and Grant multiplied by the enormous scope of their combined sense of importance divided by their usefulness to the New Zealand economy. The elephant in the room being of course their presence on the scene.
Jumbo refers to the number of old farts who thought they could get ahead by pledging their equity in their home on a rental.Thats why its being made out to be a big number.Its not really a big number but the ramifications are large.
Many "old farts" will lose the family home and the lot.
And there is nothing any of the politicians or the economists can do now.The money has been lent and allocated.And in most cases on loss making assets.The profits are only on paper or for those smart enough to get out.
Oh and the equity in the family home....yeah well it doesn't earn an income either whilst you live in it.So basically it doesn't help at all with paying higher interest rates on the rental. So many are buggered.
The country has been taken on the biggest ride by the bankers. And the media has sold the tickets on the biggest ride.
And so many people who should have said something didn't because their own house was probably going up in value and it all felt kind of good.Think FTX is bad.....take a step back and look at our economy.We have been swindled.
I couldn't think of a better way for a country to go broke.Borrow money off foreign owned banks to buy each others land & houses.
Good lord gnx I have only just arrived here and you have welcomed me so profoundly!!!!
Thank the lord I have never willfully gambled the family equity on providing rentals to the bottom feeders.
Please advise if you are certain I have erred and should I open the wallet to save some of them?
Well it's not so much providing rentals to the bottom feeders, it's outbidding middle income aspiring first home buyers and renting the properties back to them. Ensuring house price increases and rent reviews exceed their ability to accumulate a deposit for as long as possible.
The faster rates go up, the better, to help dismantle the debt ponzi that's been escalating since the 1980s, when the largest American banks lobbied mercilessly (and succeeded), to have financial product consumer protection law dismantled throughout the western world. The debt fuelled insanity of the 1920s wasn't fully unraveled until the 1950s on increased regulation of the dealers; it takes a full generation to unlearn the mistakes of the past.
Orr doing his job I guess - got people running around scared, media putting out doom headlines, DGMs on interest.co.nz frothing. Will people now be putting their wallets away for Christmas, stop hiring people/lay offs going into the new year etc?
No doubt Orr will still be talking hawkish but I suspect he will leave abit of an opening for a pivot next year...similar to the FED I wouldn't be surprised if he brings up lag effects of OCR rises.
I will end my self-imposed exile as this is one of the most important meetings in the last decade of monetary policy.
The RBNZ must go 100bp and raise the OCR track to peak at 5.5%+. Every single inflation metric is still flashing red - particularly employment, wage rises and inflation expectations. The RBNZ either draw a line in the sand and defend the purchasing power of the NZ$, or they let it go and abandon savers forever. The housing market has held up surprisingly well considering, wage rises are cushioning the increase in mortgage rates.
Let's see...
The RBNZ must go 100bp and raise the OCR track to peak at 5.5%+. Every single inflation metric is still flashing red - particularly employment, wage rises and inflation expectations. The RBNZ either draw a line in the sand and defend the purchasing power of the NZ$, or they let it go and abandon savers forever. The housing market has held up surprisingly well considering, wage rises are cushioning the increase in mortgage rates.
The NZ answer to draining the swamp
Just a reminder that a 75pts hike in interest rates would mean:
- an extra $2.5bn per year paid on mortgages - that's around a third of NZ households paying $4,200 extra interest per year ($80 per week)
- an extra $1bn per year paid on business loans
- an extra $1.9bn paid by banks to savers (people with money)
- an extra $365m of Govt money being paid directly to banks per year (interest on settlement balances held at RBNZ)
Firstly, worth doing the maths on the above - the banks are the big winners here because the balance of savings and term deposits are about half total mortgages and business loans outstanding.
Now ask, if households face massive cost increases, won't they put pressure on their employers for higher wages (putting up business costs)? Might businesses facing unavoidable cost increases from higher borrowing costs simply put up prices?
My point here is that it is far from clear that the net effect of rate hikes will be deflationary - especially when excess demand is not the source of the inflation. If we want to tackle the housing bubble and ridiculous levels of private debt (150% of GDP), then there are far smarter ways to do that.
Up to the end of 2021 we saw developers bidding on everything in that second AKL lockdown. If it was old and on land it was getting crazy money. Typically 900sqm was getting 3 mill all over AKL, if on a corner site maybe 3.5mil, Every thing was bid as if it was about to be redeveloped, and ofter the developers would bid against each other for the last 20% ,,,
Now that the developers are hit with higher rates and the developers don't know what building costs will be and you have to wait 12 months to get council etc, I have not seen to many developers buying in 2022. No more 20% froth. I think this is the frustration of current sellers that the bids being offered are probably realistically stretches for the bidders but don't meet the sellers resent memories (wants).
Maybe Orr has already done enough to cause a deep recession next year. I agree with DollarsandSense, he goes 50 imho and waits, all the talk around the bar leaners is about the recession due around March.... I think he has already actually tamed most animal instincts to speculate here. This is not going to be a Soft Landing folks, The talk is of weakening the overly tight labour market,
However Orr is going to want as many as possible to walk away from whatever landing occurs.
Place your bets.
Maybe Orr has already done enough to cause a deep recession next year. I agree with DollarsandSense, he goes 50 imho and waits, all the talk around the bar leaners is about the recession due around March.... I think he has already actually tamed most animal instincts to speculate here. This is not going to be a Soft Landing folks, The talk is of weakening the overly tight labour market,
Yes. The probability is that Kaumatua will do less than more. But where will he run if the pitchforks come out as the bubble pops dramatically?
Sheesh. If he keeps this up he could make saving worthwhile.
Obviously that would be ridiculous. I mean, we all have to keep borrowing and spending so as to keep the GST take up and pay his not at all inflated salary, that of all his minions and the salaries of all the other happy hard working people in the bureaucracy.
Or is it all a fiendish plot whereby we all ask our dear gentle leader to take charge and banish banking forever, relying on her generous donations of imperial credits to our social credit score enhanced digital wallets, while we labour at digging holes by hand for a (nationalised) Enhanced Socialist Government "business"?
The Reserve Bank alone has doubled the number of employees it has under this Labour Govt. I imagine every Govt department is just as bloated. The quickest way to fix the tight labour market would be to vote Nat/ACT and have them put a broom through these taxpayer funder pig troughs.
75 points is expected , " baked in " as they say ... either Orr goes a teensy 50 points rise & we spend the summer berating him for being a bigger choker than the AB's ...
... or ... he goes 100 points , a whole 1 % rise ... and partially redeems his shattered reputation ...
Granny Herald does a podcast hosted by Jennee and Thomas Coughlan with ex-RBNZ honcho Grant Spencer. Very damning of the current regime under Kaumatua Orr.
Mind you, one suspects Grant can be more honest now that he's removed from any criticism and political pressure.
https://www.nzherald.co.nz/nz/politics/on-the-tiles-former-reserve-bank…
Why is Orr, Robertson and Jacinda still in power? Geez kick them out already. They already screwed up the economy so many times. How many more chances will you give them?
This is reactionary economics. Anyone can react to things. I think any one of us on this forum can do the same job and would take half their salaries. I thought RBNZ is suppose to forecast and predict things, instead of just pushing buttons like a monkey would do. Wait, I apologize regarding the monkey comparison. The monkey is probably smarter.
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Who cares about this short term prediction?. It's obvious where the macro is going - decimated equities and residential property followed by wreaked commercial property values. Followed by runaway warming destroying everything else. Too pessimistic on warming ? Nope, co2 emissions are growing firmly and methane emissions growing strongly with no credible plan to reduce either. We want to party despite the economic hangover till we drop!
Kia Kaha
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