David Hargreaves sees increasing signs the Reserve Bank will have to either raise the Official Cash Rate by more than it wants to - or concede some ground to inflation

They're gunning for destruction, and there's no way to sugar coat it.

"We tried for a soft landing, didn't work out sorry"

RBNZ are responsible for the situation, not by just going overboard with printing and distribution of literally free money BUT by their denial, not ready to accept that cannot have ICU situation (Least Regret) when all data as early as December 2020 was suggesting otherwise.

Mr Orr should have known that overdose of medicene is more harmful instead of supporting Transitory Inflation manipulation to suit their narrative.

Now,  no more band aid as is the time to operate and if necessary to amputate to save.

Raise the OCR or Raise all the taxes. Why is the first the only acceptable approach to cooling the economy? Only effects the people paying off their first home and the renters.

As the Fed/RBA have stated/indicated it takes awhile for Interest Rate rises to feed through into the general economy.

2023 will be the tough year, as this is when people who have being locked in for a year on their mortgages need to refinance.

That will be when it gets scary. I'm currently paying 3.89% out to August next year - but come August what will my new interest rate be - probably North of 7%?

Now we can handle this - but a lot of people right on the breadline will be hammered - so unless something gives/occurs to reverse these Rate rises - watch out for 2023 is my call.

The strife that David mentions in early 2023 might be mitigated for many (but certainly far from all) by the wage increases that have occurred in 2022.

Those who bought in 2021 should have been stress tested at circa 6.5%. If you are re-mortgaging in early 2023 you should be doing so at a rate of probably around 6%. If you and /or your partner have been able to secure significant salary increases in 2022, then you should be ok, although undoubtedly tightening the belt on discretionary spend.

The RBNZ has historically been a big fan of the 'raised eyebrow' method of communicating what it might do.

It makes oblique comments that don't seemingly of themselves mean much - but when looked at more carefully suggest either a potential course of action the bank will take, or what it wants you to do.

Any individual investors who were watching this "raised eyebrow" and doing what the RBNZ "wanted them to do" over the last 5 years or so will now find themselves standing knee-deep in a gigantic pile of financial dog poop.

The RBNZ has been "raising its eyebrows" for years now and trying to influence people to:

- take on massive amounts of debt

- spend like drunken sailors (the Wealth Effect - party party party -  woo hoo! 🥳🍻)

- leverage into the stupidest property bubble on the globe

- get out of term deposits and go "further out on the risk curve" just as the wheels were starting to fall off the entire friggen global financial system.

Best thing to do is to IGNORE whatever those fools at the RBNZ "want" you to do and truely UNDERSTAND that those fools have very little influence on future events anyway.     

Surely anyone who listened to Adrian Orrs "lower for longer" shtick should be starting to realize by now that the RBNZ has no idea about what will happen next, and bugger all real influence over anything, including interest rates.

The bond market will decide interest rates.   The banks + swap markets will decide mortgage rates.   The RBNZ will just sit there and make lots of noise, and go along for the ride, like a boil on a dog's bum.    

If they drag their feet with OCR raises now (as Australia has done) then inflation will just get more entrenched and eventually the currency markets will box their ears, and the swap markets, bond markets and banks will ignore them and push rates up anyway.      

If anyone feels the need to look to some higher financial power for guidance, they should look to the Federal Reserve, not the impotent fools at our tiny little reserve bank.

RBNZ is rising OCR, which has to but to get the desired effect, it needs a shocker, when the expectation was 0.5% should have gobe up by 1% or 0.75% to dampen the sentiment instead of rising slowly every month.

In ovember should go high as will than have three months (Much needed) to gauge the sentiment but will Mr Orr will ????

OCR increase of 0.75% before Xmas should help with messaging - and the bargain hunting after xmas

There is still lots of money out there being spent - Ring up a tinny (boat not house) supplier and the wait list is still 12 months despite the serious price increases they are charging - and the boats keep getting bigger and flasher

They'll have to keep raising at 1% increments until inflation is under 2% or we're Venezuela.

Plan B needs to include more QT of the LSAP, i.e. a much faster reversal of the excessive quantitative easing programme of 2020 and 2021.

I am fascinated by the media focus on the OCR and the lack of focus on the need for the quantitative tightening plan to be brought forward.

KeithW

I'm not convinced the Reserve Bank has really made a dent in inflation yet. If anything falling commodity prices appear to have bailed them out but with OPEC now trying to counter falling energy prices that benefit may be curtailed.

DELAY, it's all-out delay and few seem to understand this point.

Delay between the RB raising the OCR and mortgages coming to their term, people re-fixing and then, after a few months realising how much less money is left on lattes.  Yes people know the squeeze is coming, but many only adjust their spending when they are really forced to.  As I have stated before the squeeze on spending from the increasing OCR is only going to start being felt in 2023

Delay between the rising OCR and the CPI stopping rising.  Remember the CPI is being measured year-on-year, meaning that any inflation from the last 9 months and there's plenty, is also included in the latest CPI figure.  In conclusion it will take even longer for the CPI to stop rising and it will only do so meaningful when the 2022 first quarter CPI rise drops out, in other words when the 2023 first quarter CPI will be released, which will be in… May 2023 !!!  So it's pointless expecting a meaningful drop in CPI before May 2023.

In conclusion, because of the delay explained above, the OCR is going to get raised far too high (most likely 5%), NZ will be in recession in Q1 2023 but this will only be reported in the GDP in June 2023 (we're so slow in NZ) by then CPI will be lower but not yet in the target range of 1-3%, the RB will think "we're heading in the right direction", the next set of data will be Q2 GDP deeply negative reported in September 2023 and Q2 inflation confirming its continued drop towards 1-3% reported in August 2023 and then, the RB will panic and drop the OCR back down aggressively.

So expect a much lower OCR by end of 2023 after a likely peak of 5% earlier in the year.

Many experts and economists are worried that fed (reserve banks) are over doing but reserve bank itself are worried that they have not done and are not doing enough, so OCR at 5% is a certainty 

https://www.bloomberg.com/news/articles/2022-10-12/fed-officials-commit…

We are now entering the period where rents will be going up (due to the rent freeze from March to Sept in 2020 meaning that landlords had to wait until Oct to put up rents, and are now stuck with 12 monthly review periods from that date).  In January the petrol tax goes back.  Food prices will escalate further as the 2022 harvests come in with their much higher cost base.  Electricity rates are going up.  I'm betting the February inflation report will be a humdinger. 

Stronger for longer was obvious when they tell us 12mths in advance what the rate will be. That gives you 12mths to prepare and it means your OCR instrument is more blunt than it would otherwise be. 

It is, however, starting to look as though by February some people (notably those with 2020-21 housing market-sized mortgages) are going to be in real strife - but a significant enough portion of the population will be just ordering another chardonnay.

And, therein lies the challenge. Over the coming year, mortgagors will send more and more of their money to the banks, savers will save more, households will face rocketing insurance bills, house price and equity falls will make people more cautious with their money, and, if all of that wasn't enough, Govt will be disinvesting from the economy (taxing back more than it spends). The rest of us might carry on enjoying life regardless, but we will be drinking our chardonnay at the beachfront bar, unaware of the tidal wave rising behind us until it sweeps us up.

Im thinking an OCR of about 4.25 %  is about as far as we can go without inflicting some serious pain . Im picking the Fed will have to sit around 4.25 , Im thinking they will be happy to sit there as well ,its not as high as they would like to go but it will enable the markets to steady whilst still sitting in their range projections   . I think ANZ's 4.75 forecast is unrealistic as such a rate will cause too much collateral damage . It is true that the OCR can help reduce inflation but there does come a point where it can cause too much distress, Im guessing 4.5% is the distress level. I could be wrong but lets see how it pans out ... last big hike coming from the Fed in my mind....they might even split it 50/50 . Otherwise expect chaos to reign if they push big past 4.25%. We should make the final leap and be done with it (75bps). Hefty import taxes(documentation fee..lol) could be the next weapon required. We need to encourage/support local production.

Employment data is a massively lagging variable. Make no mistake, Orr is crushing the economy. Tourism will paper over the cracks through the summer, but the wheels will be falling off by the end of Q1 2023.

If the FED rates higher then ocr come early 2023 then the NZD going to start looking like the Jap YEN.

If Orr keeps OCR at FED level he will kill NZ economy.

Interesting times

What do you expect from a bunch of deluded "experts"? Read Hayek. As Von Mises put it, it does not help to reverse back over someone after they have been run over.

The RBNZ are, I think, a decent hard working bunch, but they are given an impossible job based on the fashionable "government is wonderful" groupthink of our time. Their assumptions are nonsense and their apparent power is a temporary illusion.

What is happening is that, after decades of indulging in fantasy policy, reality is re-asserting its supremacy.

Government policy has to been to run deficits on the current account as this allows them to spend freely, which in their deluded world is a good thing. They have done this by enacting policy that encouraged us all to compete to overborrow for the privilege of living in a slightly fancier shed. Foreign bankers have obliged and have provided the funds to enable our milking.

We do not, in the main, actually own our houses, we rent the money to give the illusion of ownership, or we rent the house and the owner rents the money.

The destruction this system causes is extreme. All productive enterprise becomes less profitable and has meant we are no longer able to make anything for ourselves, so a once self reliant and independent nation has become a servile state reliant on others to provide our every need apart from food, which the current crop of air heads want to put a stop to.

In a well functioning civilised country the price of goods reflects its scarcity or otherwise, this draws people and capital to where it is most needed, with entrepreneurs devoting their chaotic experimental methods to find ways to profit from the production of scarce goods. The solution to high prices is high prices. It is an evolutionary homeostatic process, constantly seeking improvement.

In our soppy system, the most productive and capable people are drawn to speculative activities NOT productive ones. It is a fixed, non evolving, over specialised bureaucratic system running toward the nearest cliff.

https://themarket.ch/interview/russell-napier-the-world-will-experience…

The current government is increasing inflation at every opportunity. Perhaps the reserve bank should have powers to intervene in ill conceived government policy that is massively inflationary.

1) Diesel is now substantially more expensive than 98, think trucks, builders, farms, freight generally. This is absurd. Of course inflation is going to skyrocket;

2) Continuously trying to lead the world in expensive world leading environmental nonsense at the expense of one of our core sources of revenue, farming.

What the current government is doing is exactly the opposite of what they should. When will the idealism make way for realism? The radical thinking that has taken over this country is destroying it. our direct competitors will be laughing their way to more of our market share as we continue to add self imposed costs to our competitive advantages. This is what happens when idealism makes way for sensible economic management.

Unfortunately we have to wait until October next year to get rid of this crazy leadership. By that time the damage will be done.  I wonder how many labour voters that thought their lot would improve feel it has under labour.... (excluding the wealthy socialist idealists of course). The amount of continuous legislative change by central and local government is absolutely crazy...If they just stopped meddling at every opportunity we, the people that live here and pay tax, would be much better off.