Reserve Bank Governor Adrian Orr has used his first opportunity to publicly comment on the central bank’s remit tweak to stress this won’t change the way it sets monetary policy.
Speaking to the Canterbury Employers’ Chamber of Commerce on Friday, Orr said: “Our Monetary Policy Committee remit targets remain unchanged.
“We remain only focussed on maintaining low and stable consumer price inflation and contributing to maximum sustainable employment, as recently outlined in our Monetary Policy Statement.”
Orr’s comments saw the New Zealand dollar fall from US73.8 cents to US73.2 cents. It hit a 3.5-year high on Thursday.
Finance Minister Grant Robertson on Thursday put new clauses in the Monetary Policy Committee’s remit.
In pursuing its inflation and employment objectives, the Committee will have to “assess the effect of its monetary policy decisions on the Government’s policy”.
The remit stipulates the "Government's policy" is to "support more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers”.
Orr said: “The Committee will continue to be very transparent in explaining the impact of all of our monetary policy decisions on the housing market, as we are for many other variables.”
“We remain committed to our current stimulatory monetary settings until we are confident that consumer price inflation will be sustained at the 2% per annum target midpoint, and that employment is at or above its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience.”
Orr’s comments come as the remit change sees financial markets do the opposite of what the RBNZ wants them to do - place greater bets on interest rates rising, tightening monetary conditions.
10-year New Zealand Government Bonds are now trading at 1.98% on the secondary market. That’s a hefty jump from where they were at on Wednesday at 1.63%.
RBNZ will consider how restrictions on banking lending affect house prices
Orr accepted a second change Robertson made on Thursday would influence the RBNZ’s policymaking.
Robertson issued a direction, under section 68B of the Reserve Bank Act, requiring the Bank to have regard for the Government’s housing policy (quoted above) in the work it does to ensure the financial system is stable.
“We will be considering our financial stability policy settings via our prudential tools – like loan-to-value ratios, bank stress testing, and capital requirements against particular types of mortgage lending," Orr said.
“This is done with a view to moderating housing demand, particularly from investors, to best ensure house price sustainability."
Robertson hasn't given the RBNZ any new tools to regulate bank lending against housing.
Rather, he's asked the RBNZ for advice on whether debt-to-income ratio restrictions and restrictions around interest-only mortgages could be exclusively applied to investors.
The RBNZ has long advocated for having debt-to-income restrictions added to its toolkit.
Late last year it also explicitly told the Government it was happy to be made to consider house prices through the way it regulates banks, but not through the way it sets monetary policy.
Here is a snippet from the new Monetary Policy Committee remit. The new bits are in bold at the bottom:
1. Monetary policy objectives
Under section 8 of the Act the Reserve Bank, acting through the MPC, is required to formulate monetary policy with the goals of maintaining a stable general level of prices over the medium term and supporting maximum sustainable employment.
2. Operational objectives
(1) For the purpose of this remit, the MPC’s operational objectives shall be to:
(a) keep future annual inflation between 1 and 3 percent over the medium term, with a focus on keeping future inflation near the 2 percent mid-point. This target will be defined in terms of the All Groups Consumers Price Index, as published by Statistics New Zealand; and
(b) support maximum sustainable employment. The MPC should consider a broad range of labour market indicators to form a view of where employment is relative to its maximum sustainable level, taking into account that the level of maximum sustainable employment is largely determined by non-monetary factors that affect the structure and dynamics of the labour market and is not directly measurable.
(2) In pursuing the operational objectives, the MPC shall:
(a) have regard to the efficiency and soundness of the financial system; and
(b) seek to avoid unnecessary instability in output, interest rates, and the exchange rate; and
(c) discount events that have only transitory effects on inflation, setting policy with a medium-term orientation; and
(d) assess the effect of its monetary policy decisions on the Government’s policy set out in subclause (3).
(3) The Government’s policy is to support more sustainable house prices, including by dampening investor demand for existing housing stock, which would improve affordability for first-home buyers.
117 Comments
So was John Campbell's interview with Minister Robertson today:
https://www.tvnz.co.nz/one-news/new-zealand/finance-minister-defends-la…
So many words spewed from Grant and Adrian. This tool, that tool, I’m sorry (I don’t generally resort to name calling) but I only see 2 tools here if you know what I mean.
Both of them incapable of rational thought or understanding. Treating us like idiots. I am so sick of the lot! Orr, Robertson, Ardern and Woods. Jacinda should rename her party to National 2.0
Grant says Labour has made Trixie $100 better off since they became the government in 2017. Really Grant? How much has Trixie's rent increased over the same period??
Robertson waffled on interminably during the interview to cut down on the number of questions Campell could ask him. Obvious tactic.
JC.... agree, John Campbell just seems intent on what appears to be self-image promoting virtue signaling at every opportunity. If Bridges wanted to call anyone a wokester he would be hard pressed to look past John Campbell although judging by the way I see criminals acting towards and talking to the police (and police seemingly being scared to react strongly) he is probably not wrong about Andrew Coster. We need to help our marginalised people but also need to maintain support for our police and for law and order. At least Coster did not apologise for the police shooting yesterday. Was a pleasant surprise he didn't.
Robertson expecting laugh and smirk his way through a 'friendly' interview, and he must have been astonished that Campbell went after him. These Labour numpties like Roberston and Woods are starting to get the blow-torch applied to their feet. You can see question time in Parliament is now becoming a very painful ordeal for them as well.
My level of respect for politicians has not changed. It has always been zero respect and it still is. I do like Shane Reti, although if he does end up getting a chance odds on he will be a let down as well. I had high hopes for Obama when he was elected and we all know how ineffective he turned out to be.
you think you've got it bad in NZ with politicians..try living in america right now.....they flip flop like their jandels are broken and covered in sunscreen..McConnell yesterday denounces trumpty DUMBty was absolutely responsible for the Jan 6th riots and is a dispicable scumbag (besides the fact that he enabled him for 5 years)..and today he says he would vote for him in 2024...now there is an ultimate scumbag politician covering his own arse with absolutely no conscionable convictions...none. How do people actually live with themselves and get up in the morning. I mean, do they even now how to spell honor or integrity??????????????????????????????
Is it his fault there is a housing shortage? NZ has the same monetary policy settings as most other Central Banks. Many of the eye-catching sales are developers paying big money for land to put townhouses/apartments on.
I'm not a huge Orr fan but he has done all that could be expected of him to try and keep NZ exports competitive and people in their houses during a period of extreme uncertainty. That will go soaring over the heads of 95% of the contributors here.
Do I really have to break it all down for you? Higher rents, more welfare having to be paid out (by the taxpayer), less disposable income, brain drain. What is happening is wealth is being concentrated in the hands of a few to the detriment of the rest. This is about our country and our people's best interests
Likely bigger sticks than Grant's are being waved in front of Adrian.
The last thing Bigger Powers want is for the futility of Monetary Policy to have been sighted in far-flung New Zealand. That notion might catch on, and then what?!
(eg: "NZ housing policy stand blows up the bond market", "Worst bond bloodbath since 1994"
https://www.afr.com/wealth/personal-finance/worst-bond-blood-bath-since… )
It is shockingly rare in this country. Thank you, Jenée. We cannot appreciate you enough.
I highly recommend the documentary 'Collective'. One of the best I have ever seen and a grim reminder of how absolutely vital true journalism is. Everyone should see it.
https://youtu.be/KLgGoT7v3ro
https://www.theguardian.com/film/2020/nov/19/collective-review-alexande…
I see the RBNZ made it to zerohedge. Could be leading the worlds central banks. https://www.zerohedge.com/markets/pioneer-inflation-targeting-adds-asse…
He is not ignoring it, he is trying to accommodate it with the other goals of 2% inflation and full employment.
Dreamers imagined the response to the amended remit would be an OCR of 20% overnight. Orr is just giving a reality check that such action is not going to happen given it would crash inflation and CPI below target.
More nuanced tools will be required. Probably require DTIs and higher LVRs, especially for investors.
Don’t think so Fritz, unfortunately. The public service in general, at all levels national and local, has got the bit between its teeth and bolted. They are all authority and no responsibility eight days a week. Witnessed myself an elected city councillor asking for information on my behalf of a middle executive council staff individual, and been told that he had no authority to do so unless he was at such and such committee or reporting group or whatever, neither of which involved the councillor. Our public service has become more machiavellian and duplicitous than the Roman senate at Caesars time.
Far too much is being read into the last couple of days of banter, its effect on the NZD or housing , or much else.
"Reserve Bank of New Zealand says again the Bank will not be reducing monetary policy stimulus for a long time to come."
"can stimulate even further, negative cash rate is an option "
Yes, tend to agree on just how much impact this will really have on its own.
It all seems to mean still lots and lots of cheap money sloshing around – this will keep Mr Orr happy.
However who gets their hands on the cheap money and what they do with it will now be more tightly regulated in favour of FHB’s and away from investors/speculators – by using existing regulatory tools along with some possible new ones – this to keep both Mr Robertson and Mr Orr happy and should have some impact.
I agree 100%. This clown has done enough damage. Blatantly ignoring the directives and wishes of the majority of the NZ population as expressed by a democratically elected government is more than reason enough to sack him immediately. Incompetence and arrogance mixed with unaccountability make for a very dangerous mix.
But I thought the Reserve Bank was independent(?) At least, that is according to what Adern and Robertson have been saying. Now he has to follow 'directives' from the government.
Adern and Robertson were very happy for Orr to juice the economy since 2017, and now that they don't like the insipid consequences of all that loose monetary policy they need him to go under the bus for them. And he's woken up to their gameplan.
I agree. I have nothing nice to say about Orr and he deserves mockery for sure, but for the right reasons. Targeting someone's appearance rather than the actual qualities/actions that rightly deserve criticism, is pretty low. Would anyone here think it's okay to encourage their children to mock the appearance of people in response to legitimate issues they have with others? There are a lot of people that I don't respect, but going after their appearance in order to mock them is petty and undermines the legitimate issues against them. It's incredibly demeaning to other people who have a similar appearance, which they are often simply born with and have no control over.
I have a relative with neurogenic rosacea that looks fairly similar. Their facial skin is constantly bright red. On top of painful flushing episodes, they suffer debilitating nerve pain in the form of constant burning and stinging sensations. Just talking or eating etc is very painful for them. They are one of the most decent people I know, and having to field continual comments about their skin and seeing others ridiculed over their appearance, takes an additional toll on their mental health. Facial redness/Rosacea comes in many forms and is widely misunderstood even among medical professionals.
It's far more helpful to criticize and use humor to highlight what is actually at issue here, which is not his appearance.
What does that have to do with any of the real issues being discussed? The point was that we should stick to what actually matters here and not undermine the very legitimate arguments we have against these people. Mocking someone based on their appearance is a petty schoolyard tactic. We don't know what someone else is going through that can affect their appearance or whether they have any control over it. Either way, it is entirely irrelevant to whether they are a horrible person and terrible at their job.
I can hardly wait to find out what Grant considers to be Bold next month. At this rate, I wouldn't be surprised if they thought doing anything at all should qualify.
“A reckoning is coming.”
https://www.stuff.co.nz/business/money/300239675/reckoning-coming-for-u…
12-18% is the average tax paid on income??? Wow, I paid over 32%, even more if I include secondary taxes on my income (GST/fuel taxes etc on things I buy). Likely I am paying close to 40% income tax. And this year it's going to get a lot worse as Labours new "tax the productive" tax comes in.
I obviously need to get an accountant who knows how to work the system. So guess I will have to join those that know how to avoid tax. Then again, once COVID is over, might just sell up and go to a country with a tax system that makes sense.
Bernard sums up the issue nicely.
No Labour or National government want to address housing affordability (the only way to do this is to reduce house prices) because it is not politically tenable.
https://www.tvnz.co.nz/one-news/new-zealand/government-doesnt-want-push…
Unfortunately I think it will remain that way until we start seeing people protesting in the streets. Many are still clinging onto the hope of home ownership and/or struggling just to keep any sort of overpriced rundown roof over their heads. The people at the very bottom of society usually don't make much noise despite their awful situation, but you can only pull the ladder up so high from the rest, before they become disenfranchised enough to revolt.
The MSM that gives hardly any voice to this at all, is only adding to the frustration and discontent that is growing out there. I would rather see people start peacefully protesting against where this country is heading, than for us to become even further divided, which will likely see the rise of our own version of Trump in the next decade. Simon Bridges seems interested in the role.
But what Bernard is saying is that if wealth and/or capital gains taxes were introduced then house prices would fall.
And I think he's wrong there. The only thing that the government could do to bring accommodation costs down is to implement universal rent controls. And at the same time, the RBNZ could/should amend the risk weighting of lending into the residential property sector.
The MSM commentariat flapping their feathers on this seem unwilling to mention either of these two measures - as if they are 'unspeakable'.
There will be a large correction in house prices in NZ, much larger than anyone is predicting, I suspect, but it will be an external/global shock that causes it. And as always the government will be the last man standing.
Yeah, the other one which he said was even more important was for government to use its balance sheet to have a bigger-than-BenHur spend up on infrastructure. But announcing spend up after spend up after spend up is exactly what they are doing. But the work never seems to follow quickly enough to bring relief.
Hence the stimulus takes ages to materialise - whereas the affordability of accommodation is getting worse by the day. They have to look at actions today, that make a difference tomorrow (or next month at the latest).
Orr must be immediately sacked.
It is astonishing that an un-elected bureaucrat (with an inflated ego compounded by a pigged and shortsighted stubbornness and refusal to recognize his mistakes) can freely ignore the directives of a democratically elected government and, in the process, can keep wrecking the NZ economy, society and financial system stability with no accountability for his actions.
Unbelievable.
What is crazy here is that Orr has two conflicting targets - with each apparently requiring him to pull the same lever (interest rates) in two directions at the same time. The markets spotted this contradiction and decided he was going to have to find a middle ground (i.e. increase interest rates). He came out quickly today to reassure them that he was not going to do this at all actually. And, so passes another day of drama in the non-productive economy.
Remember the RBNZ cut the OCR 0.5% in August 2019 from 1.5% to 1.0% - a completely unnecessary move rightly derided by many at the time.
All it did was reignite the fire under property prices yet again – and little else in the overall economy.
They stated and thought the hoped for “wealth effect” of rising property prices would stimulate things along.
It would appear from today's statement that Mr Orr simply can’t help himself.
Spot on.
There is no Wealth Effect from property price rises born just of additional debt.
All there is, is higher nominal 'values', more debt and less disposable income to circulate in the wider economy.
The Wealth Effect is the result of work effort being rewarded with Gross Revenue being more than the Cost of Sales, not more Borrowings being higher than Gross Revenue.
Simplistically nothing is worth anything until it is sold. If NZ has its wealth in housing stock then that wealth is worth nothing internationally. In other words to spell it out, you cannot uplift a section and house in say Mt Eden or Edendale and ship it to Australia. This so called wealth is little more than fool’s gold. Except of course, as was pointed out to a similar comment of mine, you can turn the market back to front by bringing the mountain to Mohammed, ie immigration. And what does that do? Nothing but perpetuate and compound the problem in the first place, create uneasy social pressures and overload basic services such as hospitals, social welfare and population density.
This really is a state of emergency. We need to send in the army to find and remove the renegade Governor. Orr reminds me of Colonel Kurtz from Apocalypse Now. I’m sure if the army entered his building they would find a tribe of property investors insanely dancing and worshiping Adrian as the leader of their cult.
There's only 2 ways to "improve" housing affordability. Prices go down, or incomes go up. I NZ's case, either needs to happen in significant leaps for affordability to improve. Slowing down the rate of increase does nothing to improve affordability. It only serves to slow the rate at which houses become unaffordable.
Now what the F@&$ will Mr Robertson do.
Both Mr Orr and Mr Ribertson barking on public platform on each other with No Action.
Now even BNZ economist Soul has awaken by the level of ponzi :
https://i.stuff.co.nz/business/124354020/supercharged-house-prices-cant…
Jacinda Arden is silent and few years back when in opposistion was shouting from all rooftops and begging to get vote as had so many ideas... People thought was to control the situation but in reality it was to take off from where John Key government had left.
Will be interesting to watch, for how long can Jacinda and Robertson avoid talking or delaying. Have delayed from this month to next month - must be hoping for virus or any other issue to prop up to save them
I think NZ will eventually be forced to pursue a "let it run hot" policy. Most of the current inflation recently came from surging oil prices. RBNZ is not responsible for fuel taxes.
Job keeper ends in March and new stimulus will be needed; whether it comes in the form of lowered interest rates or more free money from Grunty doesn't matter, the market is washed with money awaiting borrowers.
Investors and FHBs alike should take heed to take advantage of eager lenders to acquire what they want. For those who don't meet the LVR requirements, there're other options in tier 2 or 3 lenders who are not bound to the LVR rule.
Market correction or not, there's only one long term direction for the housing market in New Zealand.
Ironically property ownership is the best hedge against economic volatility for NZ case.
Just get on the ladder and come back 10 years later and you'll see the same people whining and blaming others for their bad decisions.
"Just get on the ladder and come back 10 years later and you'll see the same people whining and blaming others for their bad decisions."
If this continues I expect to see people whining and blaming others for the angry mob at their doorsteps long before 10 years is up.
CWBW... while you and your mate Leonard Hong are trying to twist things there is more chance that the market continues on its upward trajectory for a little longer but sooner or later common sense and natural market forces will win out and normality will be returned to the NZ property market.
Aha!! – The John Campbell interview.
At just about 6.00 – so Grant is getting a reasonably good grilling by John and then Grant says it’s:
“about managing demand as well” – and then blathers on about investors and speculators etc.
However, not a word about their failed and absurdly mismanaged immigration policy – the taboo place they can never, never go –clearly it is not to be discussed and something that is never to be raised in the govt’s minds.
If they think that not talking about it or not recognising the problems caused means it will go away – then they are even dumber than so far displayed – and that’s a pretty high bar to breach.
Until Ms Adern came to the fore, they had not a snowball’s chance of being in government. It showed then and it shows now how hopelessly unprepared and unqualified the lot of them were. For instance, Mr Twyford a great spouter of advice and prowess pre election, post election the most useless waste of time imaginable. Have to say the last half of the preceding National government was a display of complacency, conceit and carelessness, but as for this Labour lot now, all simpering, fuzz and wind, a meandering troupe of no hopers.
I think hapless Grant thought he’d be running around today drowning in congratulatory high fives and adulation from the masses after yesterday’s little show and tell.
Sorry son – you’re miles off the mark.
Expect a big frown from your boss – who is rather cleverly keeping well away from this housing PR disaster.
As for Grant – lambs/slaughter.
custard.. if you expected John Campbell to raise immigration then you probably expect Tiger to win at Augusta this year as well. Even the right wing journos are too scared to mention it. It would be a fantastic troll ( as well as good comedy value) for a journo to ask Ashley Church about immigration. If Ashley railed against immigration controls it would go a long way to proving what an integral part immigration plays on property price inflation.
Speaking to the Canterbury Employers’ Chamber of Commerce on Friday, Orr said: “Our Monetary Policy Committee remit targets remain unchanged.
“We remain only focussed on maintaining low and stable consumer price inflation and contributing to maximum sustainable employment, as recently outlined in our Monetary Policy Statement.”
I can hardly wait to see the likely outcome
.
I’m sorry – this seems to have been lost in translation.
Let’s see now – “Give him credit for sticking to his gun and absolving himself in all ways to the financial and social well-being of others”.
Common sense and fairness by financial regulators – hard to find these days.
OK, all good, I’ve got it now.
So,
low and 'stable' inflation with maximum 'sustainable' employment. What does sustainable mean? Well, if you read between the lines, I think it means that the RB still believes in the theory of NAIRU. Of course, theory has had to be tweaked as reality has stubbornly refused to mimic theory. Unemployment rates have fallen below the level at which they are supposed to create inflationary pressures.
However, and just as many economists still trot out the Phillip's Curve despite the number of times it has been shown not to work, it's like driving a stake through a vampire-in the morning it rises again.
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