Economists in agreement the Reserve Bank will increase the Official Cash Rate again on Wednesday

All the economists above are looking at lagging rather than leading indicators. In the last few months, credit flows have slowed, current account deficit is widening again, mortgage / business debt costs are rising, and Govt spending is not flowing as quickly as forecast as agency belts tighten ahead of next year's budget cuts. 

The early 2026 bump was a sugar rush that followed 6-12 months after these leading indicators were clearly entering stimulatory territory.

An OCR rise next week will accelerate the developing 'fallback' and put more pressure on prices than it takes away. Debt is a cost, like labour and materials. Mortgage debt is also a living cost and wages respond to living costs not CPI. Just wait for 28 anyone? 

OCR at 2.5 to 2.75%

Inflation at 4.1% official

More service operators increasing charges by 10%

Inflation is not dead.

Our central Bank has a mandate to control inflation.  OCR needs to be at 4% plus.

Be going up.

The US treasury rollover is near due. Trillions are currently looking to be rolled over at around 5%. That will be felt globally as capital looks for greater returns, or just go to US Govt debt.

Submarines have a crush depth. So does debt. You need to know where your implosion point is...

“They want to remove stimulatory settings to ensure inflation settles back down near 2%,” he said.

What am I missing? What is being stimulated now at the current OCR rate? The housing market is still going backwards-and that's a good thing-while unemployment remains on the high side. The factors causing inflation; fuel, rates, insurance and some foods, won't be impacted by a higher OCR, so what exactly is the point?

Ah - the Illusion of Monetary Control: A Wernerian Critique of Central Bank Interest Rate Management

The institutional choreography surrounding modern monetary policy is highly predictable. A central bank, in this case, the RBNZ, signals a change to its benchmark interest rate, the Official Cash Rate (OCR). 

Plus a link to an article on this exact same subject that I guest-wrote for a LatAm geopolitical think-tank, many moons ago...

https://sovereignista.com/2024/03/12/economics-part-iv-interest-rates-m…

In response, a unified chorus of commercial bank economists steps forward to validate the trajectory, asserting that raising the "price of money" is a necessary medicine to cool demand and anchor inflation back to an arbitrary midpoint.

This established framework rests on neoclassical economic models that treat the interest rate as the primary steering wheel of macroeconomics.

However, applying the empirical and theoretical framework of Professor Richard Werner, specifically his Quantity Theory of Credit, reveals that this entire paradigm is built on a fundamental misunderstanding of banking, credit creation, and economic reality.

Far from an effective tool, interest rate manipulation acts as an ineffective, lagging indicator that shocks the real economy with cost-push inflation while structurally engineering an upward transfer of wealth to the global financial elite.

To understand why interest rate manipulation is a deeply flawed monetary tool, we need to begin by dismantling the orthodox assumption that it actively drives economic outcomes.

Neoclassical theory assumes that raising interest rates reduces borrowing, slows economic activity, and subsequently lowers consumer price inflation. Werner’s extensive empirical research, which tracks decades of historical data across major economies, demonstrates the exact opposite - interest rates are consistently a lagging indicator of growth and inflation, rather than a leading cause.

When the RBNZ reacts to historical data points, such as an annual inflation rate rising to 4.1%, it is implementing policy based on past economic conditions. Attempting to steer a complex national economy by tweaking interest rates is equivalent to trying to pilot a ship by watching the wake left behind it. By the time a central bank raises rates, the underlying economic impulses have already shifted.

Furthermore, orthodox monetary models entirely overlook the microeconomic realities of how interest rate hikes behave when they hit the ground.

Rate hikes act as an immediate penalty on the economy, functioning much like a sudden spike in energy costs. In the real world, interest is not an abstract dampener of demand- it is a direct business cost.

Most businesses rely heavily on credit for day-to-day operations, including working capital, inventory financing, and commercial mortgages. When a central bank increases the OCR, it immediately elevates the cost of production and overhead for these enterprises.

Just as a manufacturer must pass the costs of expensive electricity or fuel down the supply chain to consumers, they must also pass on the increased costs of servicing debt.

This dynamic triggers an immediate, artificial cost-push inflationary pressure across the entire economy, worsening the very problem the central bank claims to be solving.

For everyday citizens, this penalty manifests as escalating mortgage repayments and rising rents, which are non-discretionary living costs. As workers experience a severe squeeze on their disposable income due to these forced financial outflows, they naturally demand higher wages to preserve their standard of living, resulting in a secondary inflationary spiral that central banks mistakenly attribute to an "overheating" economy.

The structural failure of this policy becomes even more apparent when analyzed through Werner’s disaggregation of the money supply.

Werner’s Quantity Theory of Credit separates bank credit into two distinct flows:

(i) Credit directed toward the productive real economy for goods and services.

(ii) And credit directed toward financial circulation for asset transactions, such as existing real estate and stocks.

Productive credit creation generates non-inflationary growth because it increases GDP by expanding capacity, introducing new technologies, and funding business investments.

Financial credit, by contrast, merely pumps purchasing power into existing assets, causing asset price bubbles and banking crises.

When a central bank uniformly raises the OCR, it uses a blunt instrument that completely fails to differentiate between these two credit streams. High interest rates disproportionately choke off productive real-economy credit.

Small and medium-sized enterprises (SMEs), which serve as the primary engine for employment, find themselves unable to afford the capital necessary to innovate, expand, or retain staff. This dynamic is vividly illustrated in New Zealand's economic data, where aggressive monetary tightening has driven the unemployment rate up to a decade-high of 5.6%.

The policy eventually 'succeeds' (sic) in bringing down consumer inflation only because it acts as an economic sledgehammer, forcing the real economy into a recessionary state, deliberately crushing consumer demand, and destroying livelihoods.

Beneath the technical vocabulary of "neutral rates" and "monetary stimulus" lies a highly unequal mechanism of wealth distribution.

Commercial banks are not passive intermediaries that merely lend out existing savings - they create new money out of nothing when they issue credit. When a central bank orchestrates a high-interest-rate environment, it creates an asymmetric financial landscape.

Commercial banks are exceptionally quick to adjust their lending rates upward to maximise revenue from mortgages and business loans, yet they are notoriously slow to pass those higher yields on to everyday depositors.

This structural asymmetry facilitates an enormous, systemic transfer of wealth out of the productive economy and directly into the hands of a microscopic fraction of humanity - the financial elite, large institutional debt holders, and the banking cartel.

Liquid capital and existing wealth are rewarded with risk-free, compounding returns, while the working and middle classes see their disposable incomes extracted to service inflated debt burdens.

The consensus displayed by commercial bank economists regarding the RBNZ's policy trajectory reveals a financial system operating on an obsolete framework.

Central banks continue to rely on a tool that creates short-term cost-push inflation, damages productive industry over the medium term, and locks in severe wealth inequality in the long term. I

If a central bank genuinely sought to maintain economic stability and non-inflationary growth, it would move away from interest rate manipulation entirely.

Instead, it would adopt Werner’s model of direct quantitative credit guidance, instructing commercial banks to restrict credit for asset speculation while ensuring a steady, affordable flow of credit into productive, wealth-generating real-economy investments.

Better still, true systemic resilience requires completely reforming the money creation process into a public utility model. Under a public utility framework, the sovereign issuance and allocation of money are directly tied to public interest and real productive capacity, ensuring these macroeconomic fundamentals are, by definition, automatically optimised.

In practice, a debt-free sovereign money system shifts the power of money creation away from private commercial bank ledgers and onto a transparent public balance sheet.

Instead of money entering circulation as an interest-bearing debt, which requires continuous economic growth just to service the compounding interest, sovereign money is permanently issued directly by the state to fund tangible public infrastructure, scientific innovation, and real economic capacity.

Because this money matches real-world productivity and is not bound to a compounding debt-repayment mechanism, it eliminates the structural necessity for boom-and-bust cycles.

Taxation, especially in the form of a minuscule 0.25% FTT rather than funding government spending, is repurposed purely as a tool to regulate aggregate demand and permanently retire excess currency from circulation, thereby maintaining stable purchasing power.

Transitioning to such a system would render central banking frameworks like "Dah Fed", the 100% privately owned creature that crawled out of the 1910 Jekyll Island duck hunting expedition, entirely obsolete.

Rather than remaining the gatekeepers of economic life, these private-monopoly institutions would ultimately become nothing more than a quaint historical notion - stark monuments to a predestined-to-fail experiment in centralised private credit creation.... one that went horribly wrong.