Right, here we go. Here... We... GO! Time to grab that popcorn again, because this one's a live one. It's very alive. Mark the day Wednesday, August 14 in your calendar. In red.
Yep, for the first time since May 2023 we go into a Reserve Bank (RBNZ) review of the Official Cash Rate (OCR) with a real possibility that the rate might change.
The buzz around this OCR review is palpable. The build up has been improbable. And spectacular.
Going back to the May OCR review and Monetary Policy Statement (MPS) we had the RBNZ's shock 'hawkish' turn in which it gave a greater than 50% chance of the OCR INCREASING again, while cuts were seen as being well over a year away.
This was in fairly smart order followed in the next review in July by a muscle-contorting 'dovish pivot' in which the RBNZ made clear that OCR FALLS were very much coming into focus.
Since then we've seen the wholesale interest rate markets take up the running big time with more and more OCR cuts being 'priced in' to rates. The conniptions in global markets have all helped this along.
And then just in the past week we've had bank economists actually coming out and urging the RBNZ to cut. Which is quite extraordinary really.
A 50-50 call
At the time of writing the market was pricing in a 50-50 chance of a cut in the coming week - with just a slight leaning more towards there being a cut. For October there's nearly TWO 25 basis point cuts priced in, while by November there's more than THREE cuts priced in.
But please take the above information with all due health warnings. It has been volatile out there. Before the release of the labour market figures that I'll talk about in a minute, a cut had been FULLY PRICED in for August 14. It's been a wild ride, so, please accept that the situation might have changed somewhat again by the time you read this.
All of this comes amid a backdrop of an economy that in and around the month of June seems to have come off the rails, bashed into a large building, and rolled over on to its side.
This economic note from BNZ head of research Stephen Toplis gives a nice summary of some of the very recent economic data lowlights. Read them and weep, you might say.
One thing that could have tipped the balance towards imminent rate cuts would have been if unemployment rose more quickly than expected. It didn't. The unemployment rate as of the June quarter rose from an upwardly revised 4.4% in March to 4.6% as per figures released on August 7. The RBNZ had forecast 4.6% (so, bang on the mark) while many other economists forecast 4.7%. In addition wage rises were still quite strong. Therefore there was nothing in those labour market figures to suggest urgency for the RBNZ to cut. Hence the pulling back of market expectations for a cut.
However, it should be noted that the 4.6% unemployment rate is a three-year high, and there's no doubt the economy is now being bent backwards by the strongly restrictive monetary policy and an OCR that has been at 5.50% for well over a year now.
Do we wait for inflation to completely behave?
So, what's that 5.50% OCR all about? Well, it's all about inflation, which in mid-2022 peaked at an eye-watering 7.3% and then only slowly and stubbornly started making its way back down. The RBNZ's mandated goal is to keep inflation as measured by the Consumers Price Index (CPI) within a 1% to 3% range, with an explicit target of 2%. But the annual inflation figure has been above 3% since June 2021.
Now though, things are moving along well, with the annual inflation rate at 3.3% as of the June 2024 quarter, down from 4.0% in March. Non-tradable, domestically generated, inflation has been the bugbear, and it was still at 5.4% as of the June quarter.
The key thing really then is the extent to which the RBNZ might want to wait till the 'headline' inflation figure ducks back under 3% (now universally expected to happen in the September 2024 quarter), and whether the still 'sticky' domestic inflation is itself enough to cause the RBNZ to want to wait.
The markets and economists are clearly of a combined view that it's not necessary to wait and that inflation will now take care of itself quickly. Therefore, goes the logic, time for cuts.
Such logic was given a further positive nudge by the release on Thursday, August 8 of the RBNZ's own latest Survey of Expectations, which showed expectations of future levels of inflation continuing to track lower - with expectations across all timeframes from one-year to 10-year all agreeably starting to converge around the RBNZ's explicit target of 2%.
Right, I'll take a quick pause here for some injection of context:
The RBNZ reviews the OCR seven times a year, with the reviews coming roughly every six weeks and with a three-month gap over summer. During the course of the year there are four reviews that are accompanied by a full 60-page-ish Monetary Policy Statement (MPS) complete with bells, whistles and forecasts. These MPS reviews alternate with three so-called Monetary Policy Reviews (MPRs) that consist merely of Governor Adrian Orr's statement and a summary of the meeting of the RBNZ's Monetary Policy Committee.
I explain all the above because generally the RBNZ has a preference for making rate changes or policy shifts during one of the MPS reviews. The obvious logic is that it is much easier to explain why you've done something in a 60-page document with charts, graphs and forecasts than it is in just a few A4 pages as per the MPRs.
Picking a start point for cuts
All of which is a long way around of saying that the logic would be for the RBNZ to either start the OCR cuts at the coming Wednesday's review - which is one of the ones accompanied by a bells and whistles MPS - or wait until the next MPS review, which is in November, and happens to be the last one for three months.
However...
There is a not-so-distant precedent for starting a rate cycle at an October OCR review. This was the very thing that happened at the start of the hiking cycle we've just had, with the OCR moving up in October 2021 from just 0.25% to 0.5% on its way very hurriedly to 5.50%.
That was all a bit odd though. The RBNZ was all set to start the hiking in August 2021 and had the MPS prepped to be supportive of the move - only for Auckland to get its outbreak of Covid Delta and for the hike to be pulled at the last minute.
It does mean though that if everybody's on the same page, it's eminently possible for the RBNZ to start a rate cycle in a non-MPS review. And October 2024 had been starting to emerge as something of a favourite from the economists and commenters for the start of the cuts. There would be a certain symmetry about that, three years after the hiking began.
But in recent days attention has increasingly turned to August as the potential start date. The banks for their part have been pouring on the pressure with some fairly aggressive cuts to both mortgage and term deposit rates. They have effectively been 'doing the RBNZ's job for it', though I'm sure the RBNZ itself would rather be steering the ship through an easing cycle than have the banks doing so.
The problem with the RBNZ opting to cut as soon as next week is that while the central bank would have the luxury of the full MPS document to explain itself and to lay out the future expected OCR path, it hasn't really had much opportunity to prepare the groundwork for cuts ahead of time. So, it would be explaining after the event. The event being the cut, of course.
The strangeness of the 'superhawk' MPS
The May 'superhawk' MPS document prepared us all for the RBNZ not making any cuts till the second half of next year. So, a cut in August 2024 would be around a full year earlier than the RBNZ's most recent forecast would have had us believe!
But of course there was the tyre-shredding U-turn that the RBNZ made in July. And while that wasn't backed up by forecasts, we didn't have to read far between the lines to see that the RBNZ was now eyeing cuts a lot sooner than next year.
This sequence of events, however, probably neatly explains why much of the most recent thinking has suggested that the RBNZ might use the August MPS to fully articulate the change of tack, and the expected future OCR cuts, and then we would see the first cut in October.
Of course there will be much interest around the latest forecasts that will appear in the August MPS. We can expect very significant changes - particularly in respect to the forward forecasts for the OCR level. But it's probably safe to say that the RBNZ WON'T be forecasting an OCR of 3.25% by the end of 2025 - even if that is what the markets are currently pricing in!
Anyway, my best guess then is that we won't see a cut in the coming week's review but that the way will be very much cleared for the start of cuts in October. However, this RBNZ under Governor Adrian Orr is nothing if not full of surprises, so, really expect anything in the coming week. If you hear a loud thump at 2pm sharp on Wednesday, August 14, you will know Orr has made me fall off my chair. (Again).
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
138 Comments
The OCR is not high at 5.5%. The massive, still plump and overpumped DEBT BALLOON, IS FAR AND AWAY, MUCH TOO HIGH.
High levels of debt is the real problem.
Then the rampant and still under reported inflation figures, that is a noose around the jugular of the poorest and non-asset holding NZers.
With the world sharemarkets and property markets, still within ear shot of the super bubbles snowy and windswept peaks, taking on big debt currently is like a surefire setup, for massive financial failure in the still ensuing financial crash, to further play out.
https://youtu.be/M_nK-fU79wA?si=OEoyVKBDEEhUX5T-
The Japanese stock exchange, one day drops recently of -5.8% and then -12.4%, is just the opening act of a much larger, downwards financial reset, that has been delayed since 2008, that is now coming down the pipe.
The kicked can is now tattered and falling to bits, unable to be again dispatched into the future never-never.
It's clear as daylight, on a crispy mountain
Debt must have a price that deflates overpriced assets and focuses our lending into good productive businesses, not the Once "best bet" NZ Housing Ponzi".
Its great to see the NZ Ponzi dying, as they all eventually do......
Good to see the epitaph now being chiseled into its headstone - with the bold scribes of; "Lest we forget" and "Never Again" taking centrepiece
Surprising hawkish position from Ashley church yesterday on zb... HFL until November complemented with small drops over 12 months.
Im amazed to see the 90 day bank bills are negative to the ocr ie lower, and normally 10+bp above. Its the first time in 30 plus years of loosely watching this, and is a clear signal. The floating mortgage rate used to be funded off the 90 day rate
The Nikkei up 5%+ on the year, even with a little correction due to the carry trade unwinding - it's still a great year!
It may eventually be that we have a new debt crisis but that's likely to be in household and sovereign debt because the growth in corporate debt has been moderate by comparison.
The RBNZ says the neutral rate for the OCR (the neutral rate is neither contractionary, nor stimulatory) is about 2.75%.
An OCR at 4.5% at the end of next year would still be contractionary by some 1.75%.
I rate the chances your reckons becoming true as being close to zero.
Agree, the OCR is too high for the MASSIVELY STUPID debt levels that NZers have gambled with, since 2000.
24 Years of Dangerous Debt Gambling, has truly come home to roost in 2023/2024/2025/2026.
DDG should come with a hazardous goods corticate and enforced with special storage/containment requirements!!!
The wanton nature of far too many people thinking that Debt loadings far in excess of 3x to 4x DTIs is ok, is without doubt a setup for national financial tragedy.
Just consult the Japanese, who survived the DDG gambling up to 1990 and the subsequent crash over the following decades. NZ may well see a similar situation:
https://fred.stlouisfed.org/series/QJPN628BIS#0
Those Chris, who defy REAL PROBLEM "the massively Dangerious Debt loadings" - that must and will be deflated, are denying the past painful learnings and most likely future reality, that is going to occur.
Or to hell with it all and let's write 50 Year Mortgages, so the Ponzi can explode to the next level??? the Troposphere ??
Other like-minded and totally loaded Debt junkies, would argue for 100 year mortgages!!
DDG ... Dangerous Debt Gambling and for farmers Dried Distillers Grain
Youre not seeing many mortgagee sales since loans were pre-tested at high levels. Some sellers are getting impatient sitting on their hands too long, so you may still get that rural Bargain Basement Property Price BBPP
Like I said, NZGecko, pub-economics.
Once you get your head around the fact that all money is debt (of one sort or another) you'll begin to see why any concerns about the total amount of debt is pub-economics.
What is extremely relevant is the cost of money. This is the amount of interest that is paid. This is most often expressed as a percentage rate. Everything we consume has a cost. This includes money which is used to convert debt into something tangible that we can consume - often over many lifetimes (e.g. infrastructure).
When interest rates are too low - it leads to an unjustified increase in the amount of total debt relative to what is being produced. When it is too high - it leads to not enough new debt (i.e. money) being created because economic activity (production) decreases.
And when the interest rate is largely in balance with economic activity (production) we have a growing amount of total debt with no issues whatsoever.
Since the year 2002, NZ started down a path of a sustained level of Debt Gambling:
Real Residential Property Prices for New Zealand (QNZR628BIS) | FRED | St. Louis Fed (stlouisfed.org)
Two things help money retain its value, savers and higher interest rates. This is why I take issue with inflation targeting of ~2%, it teaches a culture to not value money, and spend it instead of save it, because it's mandated to slowly lose its value. This is why we have higher for longer interest rates right now, because people failed to save their money.
If we keep on with inflation targeting of 2% people will continue to not save money and we will have continued volatility in our economy. I think there's a psychological side of inflation targeting that hasn't been explored.
And what happens to the economy when interest rates go up? It shrinks too right? We need one or the other. If we don't ensure money retains its value by our actions then the central bank will be forced to raise rates (higher for longer).
The economy will shrink because it's propped up by excessive debt and spending.
My theory is, you can't mandate inflation at 2% and expect humans to have increasingly less trust in money year after year and have the whole thing be stable. Because fiat currency is still trust based. If we cannot trust money to hold its value for the foreseeable future then of course it will lose value. And I mean value in a psychological sense , how much a person values something.
I agree, seems insane that we are compelled (through low interest rate) to spend our savings on deposits for a house and then pay interest to the banks for 30 years, rather than saving enough money in a high interest savings accounts to eventually buy that house with cash all the while contributing even more to the economy due to not having to waste access funds on mortgage interest payments. Low interest rates promote the former, high interest rates promote the latter (and make the latter more possible since house prices wouldn't increase faster than our savings if interest rates were high enough)
Do banks not lend anyone money when interest rates are higher? Of course they would still lend money, and people would still borrow, just not as many people and not as much debt because house prices wouldn't become so incredibly expensive to purchase.
Last 12 months is a good example - interest rates were higher so house prices were suppressed, savers made a decent return (relatively speaking) from savings accounts/TDs and as far as I know banks still walked away with a good profit.
Oh come on Gecko...we all know that rusty ole tattered can has a few more kicks in her yet! My punt...rates stays the same this week with a change in tone, the big dog won't cut till November (whether that is .25 or .50 will depend on what the bigger big dog J Powell does) then another cut in February then a holy f**k slashing for a few months until they cut below their neutral to a stimulatory rate (maybe 2.0-2.5??)...when that doesn't give the boost they had hoped for over a miserable 2025 it'll be followed by the removal of loan restrictions and other dumb sh*t to try and give the economy an adrenaline shot...and then at some point that evil combo kicks in again and the ridiculous boom/bust loop continues...sh*t, I hope I am wrong...but you seriously reckon they'll actually do what should be done for the greater good kinda thing...? That's not exactly their track record eh
An entertaining and highly informative read! Wednesday it is.....
"High levels of debt is the real problem"
Yes, and when assets are either falling or stagnant at best it takes much longer to pay it down than to have it inflated away in a jiffy. Very slow grind ahead for some by the looks of it, it's going to be tough.
This is not a slow grind, this is Lower Very Much Faster now old Pops. Get into that wheelchair cause we’re speeding down the hill.
HFL was a farce perpetuated by the tax receipt sucking rich BOOMERS who have destroyed and continue to destroy the economy to get a couple of extra pips on a TD, SHAME ON YOU.
Cut The Pension 🎬
Wow. So entitled to expect near free risky debt at the expense of the conservative saver. HFL is just a term. It is really "more normal again" after a decade of abnormal cheap debt.
Leveraged debt on interest only relying on inflation to make money is the cancer causer. Inflation being the cancer.
All those as you put it "blood suckers" and their parents built and paid for pretty much all the govt services and infrastructure you enjoy. That they are now over run by immigration is not their doing. Immigration that never had an electoral mandate, which is another debate.
PS all the blood sucker's vote, every govt and council election. Sub 35 numbers continue to be weak. Many either don't care, or run off overseas after receiving free Healthcare and education since birth. Both paid for by the same blood sucker's.
Play the ball not the man/woman.
There is a shortsighted, distinctly sour grapes note in some of your comments. Some people have savings because they worked hard all their lives, and/or by taking risks in creating companies, running businesses, creating jobs and investing in the real economy. As an example, I personally know a woman who worked really hard in NZ and in AU as a miner for much of her life, until she got enough savings and courage to buy a hotel in Otago, where she employs a few people.
She is now quite wealthy, and she deserves every single dollar she now has as savings for her near future retirement. Not all wealthy people are wealthy because they invested in residential housing.
...my best guess then is that we won't see a cut in the coming week's review...
I concur and I think RBNZ will be happy with where inflation has been over the last three quarters, 0.4% to 0.6%, it's a nice sweet spot for them and they won't want to change any settings while inflation remains there. Looking forwards most commodities have been very stable though there will be an inflationary jolt from the local electricity market next quarter.
What might get RBNZ cutting is if the FED does a couple first which causes NZ to import deflation through the currency.
However, our Gold medals has ticked up much higher than anticipated, now at 9x Golds.
So this inflation in gold dictates a Hike to contain our goldy largess?
Poor Austrailia, doing much worse, in the only count that really matters....per capital.
https://www.medalspercapita.com/
Got to think these electricity prices will impact inflation until we get decent rain. I guess on the consumer side they are like a free hike...
But this is having huge hits to productivity.
Some decision is necessary re additional quick start, they are a bit stuffed here gas (no gas) or coal (no friends).
Yes the hydro being at just 50% water capacity, has our National electric battery flaccid and one that requires National concern and reflection.
The rocketing spot price will see the beleaguered Kiwi household suckerpunched yet again with big retail price hikes surely comming soon.
Just like a rocketing oil price, electricity will feed new, much bigger costs to all industries and housholds.
Time to get off the tit of the National grid? This is really more viable at 30 to 40c kWh.
New inflation spikes are a comming.....
The ELECTRIC BLACK SWAN, is paddling in the shallows.....
You still won't get a quote from any installer for anything under 8-11K, approx 2x that for batteries. Solar panel and inverters are only 1/4th to 1/5th of the total cost to a household, more in some cases. There's a reason why we can't build, install and produce things in this country anymore.
We have over-corporatised and over-financialised basic human necessities such as energy, housing and food.
We've made things complex, and our labour force has over-migrated away from primary and secondary functions.
Everything's geared so our tertiary labour force can only afford physical things if the people making them are paid next to nothing. And technology struggles to have a deflationary effect in this realm.
Lower interest rates! Of course! That will solve all of our problems, just as it is elsewhere....
"China announced its most drastic moves to shore up the beleaguered property market by removing the floor on mortgage rates and encouraging local governments to buy homes to convert them into affordable housing. Investors hoped the latest steps marked the beginning of more decisive government intervention to compensate for waning demand for both new and old apartments, slow down falling prices, and reduce a growing stock of unsold homes."
https://www.afr.com/world/asia/china-unveils-dramatic-steps-to-rescue-p…
And...let's remind ourselves of when, arguably, our fixation with Private Debt channelled into property speculation really accelerated; when we brought in the currently failing tool of Monetary Policy - The OCR.
"In February 1999 the Reserve Bank announced measures designed to improve the way monetary policy is implemented in New Zealand. The Bank introduced the Official Cash Rate (OCR) system to manage short-term interest rates."
Had we stuck to the Quantity of Debt in the local System, and not focussed on Price for the last 25 years, then maybe we would be in this situation? But we will never know. What we do know is what we have right now is going to lead to a situation similar to other 'developed' countries unless we change tack; refocus on what's important with any Debt assumed - what we us it for.
Indeed:
It’s not so much that we’re in a recession; the whole economy has been shrinking really, since 2008. The idea of a recession is a fantasy created by the National Bureau of Economic Research. And the whole principle underlying all of its models is that the economy works in a sine curve; it goes up and down, and there are automatic correction factors. Once it goes up, there are internal correction factors that move it down, but it’s always rescued, because when an economy moves down, labor becomes cheaper, there’s unemployment, it is hired again, and employers can make more profits, and there’s a recovery.
This is not how economies have worked for the last 5000 years. What does the National Bureau leave out of account? That every recovery from a recession has started from a higher and higher debt level.
Now the economy has reached the very peak of its debt-carrying capacity, and there is no way that it can recover. Every recovery has been weaker, and weaker, and weaker, because the debt that it has come has been sort of like driving a car and stepping on the brake.
The debt that has been fueling the financial sector is an overhead. It’s paid by the economy at large, by the 90% of the economy that is indebted. Not only wage earners, but corporations, cities and states, and the federal government.
The recipients of all of this gain are the creditor class, basically the 10%, or even the 1%, and especially the 0.1%.
So the question is not if the economy is in a recession which automatically is going to recover; there is no sign that it’s going to recover at all.
The artificial gain in stock market prices and the financial sector since the 2008 crash has been accrued almost entirely to the top 5% or 1% of the population. The economy at large for the 90% has actually been shrinking.
Much of the so-called growth in national income has been financial returns. Interest payments are counted as part of the GDP. Penalty fees are part of GDP. Rising housing prices are counted as part of the GDP. And yet it’s harder and harder for people to buy housing, and they have to pay more and more mortgage debt in order to buy the higher priced housing.
All of this is called the boom, and it’s not a boom at all. It’s impoverishing the real economy of production and consumption. But it has been making money for the financial economy, which is really extractive.
All of these gains really should be looked at as a subtrahend from GDP, not as part of GDP. It’s not really a product. The financial sector doesn’t produce a product. The real estate and rent-extracting sectors, the monopolists, don’t produce a product; they simply charge more. And that’s a transfer payment from the economy to the rent extractors – the recipients of rent, the monopolists, the real estate speculators, but most of all the financial sector.
So if you look at the financial sector as the driving force of the economy, the economy you’re talking about is the economy of the 10% that makes its money by impoverishing the 90%, and therefore impoverishing the economy at large.
So we haven’t been in a recovery since 2008. We’ve been in a steady financial squeeze, a steady decline. That’s called neoliberal growth. Link
Fiat has been ruthlessly debased (QE) to keep the system going, as default and deflation cannot occur under FED control.... The only alternative investment is gold or rat poison. Imagine a world where international trade fell by 30% (mainly due to the far end not being able to afford vs not wanting your goods) a self reinforcing spiral when local agriculture and manufacturing collapses under the fiat debts already incurred in the chase for capital gains.
Lets face it NZ, those Chinese tourists in record numbers are not coming back, our Dairy and Red Meat exports are luxury products.
Best outcomes - Global lost decade/s, Worst outcome , 2nd great depression.
Least likely outcome - whatever comes out of that clown Ashley Church's mouth.
Cannot hurt to have a bit of gold/ratty
Yes heard the AC-Tool too.
What a cluster take on the tax rules. I'm sure he knew the truth tbh.
Just goes to show, he would incite others, openly on the nationwide Onewoof property pumping radio show, to wantonly break the well-known (Intent to sell for profit) tax rules. He has no shame and will do anything to reinflate this well punctured, well deflating, NZ property Ponzi.
The following was published on interest way back in June 2015;
"The purpose of the bright-line test is to supplement the “intention test” in the current land sale rules. The intention test makes gains from the sale of real property purchased with an intention of resale taxable"
https://www.interest.co.nz/sites/default/files/embedded_images/brightli…
All that was needed was one final ingredient - a fiscally challenged Government. Now, it's probably game on. Property Speculators, this lesson was brought to you by the letters "I", "R" and "D"
He knows the rules. He's a lying f***, always has been. Even since he was Newmarket Business Association manager (one of the National Party positions people get to be able to tick the box to say they have business experience before entering politics, like Fonterra and banking positions). Always been full of shit.
He's probably deep in shit with his investment property portfolio and peddles the lies to try to get himself out of the hole. It just shows how much sway the property lobby has that he gets to air his views.
There’s no good options. It’s all about taking the least bad option.
As I have said before, I think RBNZ will hold. But the cuts aren’t far away. The least bad option will soon become cutting - a little bit of residual inflation will be tolerated relative to a tanking economy.
And that least Bad Option will be worse than most anticipate. Why? Because in the very near future there's going to be next to no buyers for whatever it is we think we have today that constitutes our "Wealth".
"Statistics show most countries are now below the replacement rate – that’s 2.1 children per woman, enough to replace the existing population. In Taiwan, where the fertility rate has now fallen to 0.865, they are closing schools. In Japan, the rate is 1.21. In Greece, where it’s 1.264, some villages have not seen a birth in years.. And in South Korea, where it’s 0.72, the population is expected to halve by 2100. Australia’s fertility rate peaked at 3.5 in 1961. By 1975 it had dropped to replacement level (2.1), and now it sits at 1.6."
China is struggling to sell the over supply of houses it has and the population is also due a collapse from demographics. Every so often i take a look at some of the you tube channels of people who have bought in Japan and restored old farm houses, pretty cool if you are decent DIY skills with wooden buildings. Families abandon them due to rate demands. Can you imagine a NZer abandoning a pooperty?
There will be no cuts this week. I think all on this site agree on that, though David puts the chances at 50-50.
I put the probability at about 10% chance. Adrian Orr definitely won't want to cut, but some on his committee might want to cut. From memory, it goes to a vote, and it will be interesting to see how many are for, and how many against.
The real economy has been cut in two by a coordinated RBNZ and Treasury pincer movement. Making performative adjustments to the OCR next week or in November will make sod all difference. The Govt are going to let unemployment spiral. They're shrinking the state and seem determined to sell off our assets to offshore investors so that they can extract rent from our economy forever. It's a recipe for decades of falling behind the rest of the world - we're playing to our weaknesses not our strengths.
"Pincer movement"
Its going to be a DOUBLE pincer for the gubmint
The country is almost dead, which probably exacerbates treasury cashflows, and the companies left are sending profits offshore through high interest payments. Even lower tax take but higher social welfare while Adrian goes rogue beating the sick horse
re ... "Non-tradable, domestically generated, inflation has been the bugbear, and it was still at 5.4% as of the June quarter."
Has anyone noticed, or questioned, how much of our inflation is driven by "unquestionable percentages" added by bureaucracies in NZ? (Businesses do this too. E.g. real estate agents.)
Case in point: Council fees for building works are based on the "value of consented work". And they're mostly calculated as a percentage. As we've recently seen, the cost inflation of building has recently far outstripped general inflation. But !!!! Has the cost to process a building consent, or inspect the works, and issue the completion documentation likewise gone up by the same amount?
No. It has not. Not even close! The job remains EXACTLY the same. The only additional costs due to inflation are trivial.
Try challenging this rort with Councils. They're a massive bureaucratic monopoly. They exercise their power to tell you to Foxtrot Oscar with impunity.
What's the Commerce Commission doing about this? Government? Anyone?
Yes, there are lots of rachet-up mechanisms like that - set margins that amplify imported cost increases, inflation-indexed contracts, % based fees (public and private). They should absolutely be challenged. It's also why it is so important that imported price shocks are identified early and managed at the border.
The job remains EXACTLY the same.
Like all of our inflationary regulations (of which there is so, so much), the powers that be will argue the output is of a higher quality due to the benefits their regulation brings.
I.e., you have your new house, but due to our amazing health and safety policy, we've actually added value by mitigating injury, saving money on ACC, etc.
Except health and safety hasn't done jot to reduce workplace injury or death, but that's by the by.
The illusion of being "first world" via regulation is priceless. While we wonder why there's little appetite to create businesses and jobs here.
ChrisOfNoFame. Spot on. This type of gouging is widespread. I just don’t believe this country can move forward as a real productive/progressive state till we collectively confront our weaknesses and change. It is a weakness because we collectively know it exists but do nothing to change it.
(Good time to repost this.)
Cuts now are simply too late. Even big ones of 0.5%.
The damage was done months ago. Back in November '23 we had signs - very clear signs - that inflation was heading down.
At the same time, the RBNZ had a 'neutral' OCR rate of 2.5% (the neutral rate is neither contractionary, nor stimulatory) but had the OCR at contractionary 5.5%.
That 3.0% gap has been contractionary for NZ Inc ever since. Even as inflation fell, further and further, the RBNZ kept the contractionary rate at 3.0% and ... contractionary pressures increased and economic activity declined even faster. I.e. the longer it stays in place unchanged, the greater its effect.
The RBNZ still have their extremely heavy foot firmly on the brake even though it is well past the need for rapid deacceleration.
What the RBNZ should have done was to reduce the contractionary interest rate gap - the gap between a neutral OCR at 3.0% and the still current OCR at 5.5% - down as inflation fell.
That time that should have started was November 2023.
And now? Now the RBNZ is likely to be forced into an expansionary interest rate gap where the OCR falls below the neutral rate. This shouldn't ever happen except in exceptional circumstances like the GFC (but not covid).
So thanks RBNZ ... Boom, Bust. Boom, Bust.
Worse. Central. Bank. Ever.
We could also argue that due to central banks' desire for 2% inflation and accompanying monetary policy, we just had the largest expansionary period in history, attributing to extreme over valuation across pretty much the whole global economy.
Our desire to avoid the economic realities of downturns, has made us extremely fragile.
But if the RBNZ does cause the NZD to fall, the RBNZ could make a killing on the FX market by utilising their foreign exchange reserves to buy up a knocked down NZD and simply wait until the US Fed does in fact cut.
Of course, FX traders know this too. Thus the RBNZ simply having the power to do this helps stabilise the NZD. Those trading FX with short term perspectives (minutes, hours, days) will continue as per normal (kind of), but those trading FX with longer term view (months, quarters, years) will be more cautious. (And let's not forget all the 'hedging' that goes on where the short term perspectives get 'protected' by the long term perspectives.)
Like all things in the financial world, Takere, it's not nearly as black and white as pub-economists will tell you.
Going back to the May OCR review and Monetary Policy Statement (MPS) we had the RBNZ's shock 'hawkish' turn in which it gave a greater than 50% chance of the OCR INCREASING again, while cuts were seen as being well over a year away.
This was in fairly smart order followed in the next review in July by a muscle-contorting 'dovish pivot' in which the RBNZ made clear that OCR FALLS were very much coming into focus.
So a total and complete 180 degree about face between May and July, ay?
So was the RBNZ being untruthful in May (as I and others suggested at the time)?
Or is this yet another example that RBNZ is failing in their mandate to provide financial stability (as I and others have said now for quite some time)?
The RBNZ must answer this. There is simply NOTHING in the data to justify such an massive shift in the outlook.
Particularly so as the retail banks hawked the May message to get people to lock into longer term fixed mortgages at what will shortly be extremely expensive rates !!!
If they think lying to us back in May is okay, then they must come out and say so.
If they stand by what they said then their competence has to be questioned.
There is no in between. So what is it? Lying? Or incompetence?
So if he does nothing to the OCR - he's wrong and,
If he cuts the OCR - he's wrong, and
If he raises the OCR - he's wrong.
Then the obvious solution is to....scrap the OCR altogether. Cut Adrian and the RBNZ out and get them back to a less challenging task; like monitoring the amount of Debt in our System. (NB: We didn't have an OCR at all for the RBNZ to be wrong with, before 1999)
Let Borrowers and Lenders compete for what funds are available based on prevailing Risk Assessments, including Geopolitical Risks as well as Country and Counterparty Risks, and let interest rates be set by the market on an individual basis.
Sounds good to me!
Value is already Consolidates among a few wealthy players and the rest of the economy is already finding it difficult to do much other than speculate on residential property?
Providing more and cheaper Debt to the System is how and why we got here, and more of the same will just give us an amplified, more of the same. How can it be otherwise? Give The System more undirected money, and what will it do with it? Spend it. And what will that achieve? Higher prices for the same stuff. Inflation in its trues sense - and expansion of the Money Supply. Get that bit sorted, and we are more than halfway to correcting the current massive imbalance between The Few and the Many.
No one is saying, no access to credit. There will be, but at a price that better reflects the risks associated with that, that are by and large mitigated by an artificial construct - The OCR. If banks don't lend as much, what happens? The price of Debt falls. It has to. If banks don't lend, they don't make a profit and go out of business, etc. But let the price of Debt be determined by that process and not by "Adrian being wrong, again". Let borrowers elevate themselves though work effort and the business opportunities they create, and not (as we do today) banking on the price of their home(s) rising. Isn't that the very definition of Capitalism?
In countries without the same sorts of institutions and mechanism for credit as ours, the cost of credit is far higher, and social mobility far lower. Although houses are also cheaper, so that's something.
It should be apparent that pure capitalism isnt really practiced in most of the world. Except maybe places like Somalia.
In which case we are all going to end up like Somalia. I know you don't agree with that, but at some stage - just as every fiat system across the course of history has failed in the same way; too much Debt creation backed by the same or shrinking real assets, that's where we are off to.
When. The eternal question we all want the answer to - in advance, of course! And who knows, this opinion for some years back might just be the answer:
"Each Kondratieff cycle ends with a general crisis. Karl Marx predicted capitalism as crisis-prone and believed this would lead to it falling apart. But Kondratieff found that capitalism reinvented itself with each crisis. As the saying goes, “desperate times require desperate measures” - giving rise to new solutions, investment in technology and new business models. These periods of crisis or struggle generally last between 12-15 years and eventually a new form of capitalism emerges. We seem to be in a period of struggle now. Based on past trends, the predicted crisis of the current Kondratieff cycle should take place between 2015 and 2030. When future economists or strategists look back, the refugee wave that hit Europe in 2015 may be considered the triggering event."
And what do we see across the street of the UK today? Perhaps something similar.
Hating on migrants is one of the most popular sports of all of human history. So it's hard to read much into that.
What's apparent, is that globalism has had mixed fortunes. Billions are out of poverty, but at the expense of traditional workers in other economies. Growth struggles once a society has reached a level of maturity. Wealth ultimately consolidates and the value of a worker depreciates in relative terms. So fortunes of the majority deteriorate, as does the quality of public services.
Yes, there are other exacerbating factors, cost and access to credit, age demographics, societal and cultural changes, migration, the list is long.
The UK is probably us in another generation or two, maybe. Same system, same results.
Really, our hail Mary is for globalism to fracture, and we have to either produce more goods indigenously, or import less (we could he forced to), and presumably our exports retain demand and there's enough customers to sell them to.
I disagree. Capitalism ends up in the same place, but without access to credit, there's even less scope for someone to elevate themselves.
The access to credit just hides the fact the majority are getting screwed. It allows people to think they are getting richer while the whole time the richest are taking an even bigger share of the pie each year. If you had a fixed supply it would be really obvious. The majority would be getting poorer in nominal terms and the rich would be getting richer in nominal terms. This would result in changes to taxation to prevent them taking more than their fair share. However because everything inflates it makes it much harder for the masses to understand the fact that despite getting more in nominal terms they are actually getting less as a proportion of the overall pie each year.
I think that all commentators, incl. Banks, all "Economists", and media, should declare their source of funds, including what % of their income comes from the Property industry.
Too many are presented as independent and experts when they are really part of the Ponzi.
Ever noticed how you say more about me than engaging in the subject matter.
It gets easier when you see life is good and bad at the same time. There's only so much complaining you can do about things that won't change.
We have relatively low debt so the country likely has decades of mismanagement in front of it before we end up like *insert failed state here*
In the meantime, weeeeeeee
Interesting comments... Im gonna hazard a guess and say it is possible a .25 drop could show itself . I dont see any sense in blaming others for what they may or may not have done or be doing ...better surely to play the hand you have and get on with it. What I do think is that all of us as New Zealanders need to remind ourselves that there was a time when it was socially acceptable to say everyone needs a roof over their heads and that if we cannot lift owner/occupier rates we will be failing our youth and the generations that follow. What are we creating for those that will follow in our footsteps? How do we ensure they are not confined to a life of paying off someone else's investments? Are we dream makers or dream destroyers ?
Opinion piece in the AFR about central bank and govt incompetence as it relates to the price of money in Aussie.
Unfortunately, one tough statement does not undo more than a decade of RBA weakness and failure – and the diminution of its credibility that resulted. So little respect do market participants have for the bank that, despite Bullock’s clear forward guidance, they are still pricing in a rate cut this year.
If her word is her bond, then it’s been downgraded to junk. The RBA is like a broken rudder – with the market’s direction responding only very loosely to dramatic changes in inputs. That’s the consequence of decades of mismanagement – recently as bad as ever – that will take decades to repair.
More than two years ago, in these pages, I warned of the Treasurer’s complacency about our inflation crisis. In the two years since, every lever of government has been geared towards exacerbating it. Even worse, Canberra has waged a relentless disinformation campaign – not just claiming it wasn’t making things worse, but having the gall to claim it was making things better.
Well, you reap what you sow.
https://www.afr.com/policy/economy/reserve-bank-has-finally-taken-the-i…
The Deputy Governor of the RBA could just as well be talking about NZ as well as Australia ..
“But one feature of the landscape is less desirable – and that is the extraordinary certainty with which individual views about the outlook for the economy and the path of monetary policy can sometimes be expressed.”
Mr Hauser said economic commentators had created “a world of winners and losers, gurus and charlatans, geniuses and buffoons”.
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