About two years ago I wrote an article in which I characterised the interest rate hiking cycle that had been commenced by the Reserve Bank in October 2021 as a monetary policy ‘experiment’.
What I meant was we were sailing uncharted waters. Yes, New Zealand had experienced interest rate hiking cycles before – but never of such a magnitude at such great pace.
My argument was, therefore, that we couldn’t be exactly sure what the consequences would be. I said:
The chances are that these OCR hikes could all 'catch up at once'. And the impact could be far greater than anybody currently anticipates.
If that happens, what then?
The worst case scenario would be an economy grinding to a halt, but with inflation still pervasive.
Well, two years down the track. I stand by what I said then.
Now, yes, the June quarter inflation figures released this week would suggest that inflation IS coming under control, which is great to see. So, the RBNZ would be able to point to the OCR hikes as ‘working’.
But, for me, the jury is still out on the other side of the equation – which is the damage done to the economy.
The 0.2% growth registered in GDP for the March quarter of 2024 followed four out of five quarters of contraction.
June quarter a write off
Economists have already written off the June quarter on the basis of a whole series of diabolical results from high frequency data. So, while the June quarter GDP figures won’t be released till September 19, there’s already widespread expectation the economy will have gone backwards again.
I suspect the decline in GDP in the June quarter might have been a bit worse than the 0.2% figure being banded about by economists.
Assuming the economy did contract in the June quarter, this means we will have seen five quarters out of seven of contraction. That will put the current economic downturn in the same sort of company as the grim days of the late 1980s-early-1990s and the post-Global Financial Crisis period.
As economists have pointed out, on a per capita basis our GDP has already contracted by MORE now than during the post GFC period.
The key question for me in all this is whether what we are seeing of the economy now represents the ‘worst’ of it, or whether there’s more to come.
Those choosing to look on the bright side have switched from earlier prognostications of a ‘soft landing’ to saying that, well, if the downturn is a sharp one then the recovery will be quicker.
However, I go back to the ‘experimental’ nature of the OCR hiking cycle. The really big question is that by now beginning to reverse the interest rate hikes, will this just magically bring things back to life?
Well, the problem as I see it is that we won’t know for a while just how much damage has been done. And that in part is due to the fact that for quite some time the ‘damage’ was not really apparent at all.
Getting bang for its buck
The circumstances surrounding this OCR hiking cycle have been very muddy from the start.
It was rightly pointed out in 2021 that the Reserve Bank would get ‘a lot of bang for its buck’ pretty quickly from rate hikes. That was because at the time well over three quarters of the country’s mortgages were either floating or on fixed terms of a year or less. So, in other words the ‘pain’ from higher rates would be felt relatively quickly. That was in some contrast to the elongated hiking cycle just ahead of the GFC when the RBNZ kept squeezing and squeezing with 25 basis point hikes to the OCR but with little tangible result – because a lot of people had taken longer fixed terms.
However, nothing is straight forward. According to the RBNZ only about a third of Kiwis actually have a mortgage. So, yes, that means the grunt work of monetary policy is being done by about a third of the population.
And while, yes, the about-a-third were fairly quickly exposed to higher interest rates this time around, there were other complicating factors in play.
Remember, one of the key components of this massive global surge in inflation that we’ve seen was the massive stimulus provided to offset the effects of the Covid pandemic.
What we had by 2021 was – and this is a generalisation – a population that had been well supported both on a fiscal level by the Government and at a monetary policy level by the Reserve Bank. So, people were ‘cashed up’. Good savings buffers had been accumulated. With incredibly low interest rates in the 2020-21 period (and they had been historically very low before then anyway), very many mortgage holders were able to get comfortably ahead with their payments.
Then of course there were those people who didn’t have mortgages and so that was all very nice and comfortable and basically continued to be so even as interest rates started going up.
I would contend that all this made it very difficult to gauge the impact of the interest rate rises.
Keeping it under wraps
Outwardly it looked as if ‘nothing was happening’. As I’ve said before, Kiwis are a pretty phlegmatic bunch and aren’t going to shout from the rooftops if their savings buffers are going and they are starting to get into a bit of strife meeting mortgage payments.
By last year what we probably had in this country was a mix of the phlegmatic types getting into strife but suffering in silence, while those without mortgages were probably just sailing along fine anyway.
To go back to the article I wrote in 2022, my the worry was that all the OCR hikes would ‘catch up’ at once. And that appears to be what’s happened now.
So, we have switched rapidly from a situation in which it was not clear what effect the OCR hikes were having to being able to see very clearly that, oh, yes, the OCR hikes have had an impact all right.
From October 2021 when the hiking cycle started the RBNZ raised the OCR by 525 basis points (from 0.25% to 5.50%). The conventional approach might be to raise the OCR in 25 basis point increments. So, that 525 points worth of hiking would have constituted 21 individual hikes if done in that manner. There are seven OCR reviews in a year. It would have taken the RBNZ three years.
Instead, however, the whole lot was hiked in just 12 instalments (in well under two years), including one jumbo-sized 75-point hike in November 2022. So, that November 2022 movement was effectively three hikes in one. How is the RBNZ to actually know at the time that it needs THREE hikes when one might do?
All of which is a way of asking whether our OCR rises might have been well and truly overcooked? And, honestly, we don’t know. Might ultimately an OCR of say 4.0% have done the trick?
Obviously the RBNZ is going to say that the fact that inflation is now retreating points to the success of this hiking cycle.
But, look, if I want to crack a walnut… well, then, a sledgehammer will do the job. Is it necessary though? The OCR is such a blunt weapon, it is really hard to judge if three blows are needed when in reality one might do.
From considered steps to calculated leaps
Just before the RBNZ’s tightening cycle began in 2021 the central bank talked of how it would raise rates in “considered steps”. The upshot was that the hiking would be done gradually and with all due measurement of the consequences along the way. But this approach fairly soon gave way to the calculated leaps approach we ended up seeing – very possibly because that was happening overseas too. But just because ‘everybody’s doing it’ doesn’t necessarily make it right.
Before anybody terms the OCR hiking cycle a “success” in turning back inflation, we need to find out where the economy goes from here.
I talked further up about how the damage was initially being done in the economy without it being immediately noticeable. What seems to have transpired from what I can see is that once the direct impacts on the mortgage holders became very noticeable this has had a kind of psychological flow-on to others. And suddenly it means that even those who can still afford to go out and spend stop doing so. They decide that times are tough and they shouldn’t. And that means businesses find they have no customers and their trade tanks. And they go under and people lose jobs. This is what we are now seeing in a rush. The unemployment figures to be released on August 7 will be very informative. If there’s a big jump (and I suspect there might be) then we could be in trouble.
The real test comes as we see interest rates start to come down. It’s now looking like it will be November at the latest for OCR cuts. And an earlier start date is very possible.
Assessing the damage
If the RBNZ starts to realise that the economy’s rather more damaged than it thought it can of course start to drop the OCR in big chunks as well. What goes up at speed can certainly come down at speed. In the wake of the GFC, for example, we saw the OCR cut on two consecutive occasions by 150 points (a whopping 300 points combined).
So, the RBNZ can accelerate the cutting process if it wants. And with mortgage holders having opted recently for shorter and shorter fixed rate terms (in anticipation of rate cuts) then many should get some relief quite soon.
The big question that follows is whether such mortgage holders are then able to start spending again.
In addition, will the mood in the economy lift sufficiently that those who aren’t financially stressed – but have in any case closed their wallets – start to spend again?
If that is what happens then the RBNZ will claim success.
I have my doubts it will be that easy. But even if there is a good recovery from here, I’m increasingly of a view that we need to find a better way of keeping our economy on track than simply targeting inflation, and doing so with an instrument as blunt and hard to measure as the OCR.
I stick with my earlier view that this particular monetary policy cycle has been an ‘experiment’. And just by knocking inflation back doesn’t mean this experiment has been a ‘success’. There may have been a better way.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
156 Comments
Firstly, thank you David, this is a great article and brings back very relevant observations that you made.
The housing market is not justification for the actions of the Reserve Bank. If they were to hide behind the claim they were making housing more affordable, they would have a hard time rationalising the pain they have inflicted on existing home owners for this cause. There are other levers that can be pulled to lower house prices; stamp duty, capital gains tax, DTI’s etc.
People are leaving New Zealand in droves and it’s because NZ has become a land with little opportunity. It is depressing here. The reserve bank have achieved far more than they set out. The unexpected consequences of their rapid OCR hike will forever change New Zealand for the worse.
I have read stories on this website since returning from the UK just a few years before Covid. My partner and I have become increasingly frustrated and now angry by how the reserve bank appear to have a free pass from so many economists, commentators and politicians for the damage they have done. How?
I agree with this, we are using the OCR as a stick and carrot for housing activity and there are far better controls available that are either ignored or are ineffective (DTI, CGT).
My only hope is that we do so much damage this cycle that things change for the better.
Currently all those I work with in their 20’s and early 30’s have either left or planning too. It’s not like a normal OE, they have zero intention of coming back.
CGT is not an effective way of reducing house prices which need to be done, At 0% house price growth CGT has zero effect and if you are fair you will give people a tax break if the house price goes down. There are plenty of places in the world that have a CGT and have high house prices. For me there are main 2 factors a play here easy credit, and the underlying belief of most New Zealanders that house prices only go up. Unfortunately house prices are so insane that there is going to be pain. Although I am not opposed to debt to income anything to stop people borrowing to pay insane amounts of money on a shack.
Most of "the people leaving NZ in droves" are going to Oz which already has CGT (on investment property not on family home), stamp duties etc - & also has significant house price inflation. So to be effective action needs to be taken at the supply demand equilibrium, not ticket clipping taxes.
Both Oz & NZ have had central Govts wilfully enabling record immigration in recent years & local Govts wilfully constraining land supply for decades (a current focus of National housing policy)
People's sphere of influence means they're not very capable of comprehending conditions outside of those immediately around them.
In NZ, we're bitching that central authorities did too much, and now not enough to save us.
Much of the rest of the world had no helicopter money and cheap interest rates. They just lost their incomes and had to go hand to mouth, or get 20%+ interest rate debt to buy basics. And they still got inflation.
Most of humanity has just had to endure with whatever life and the universe throws at them.
We're now expecting a system that reliably prevents us from ever experiencing a bad crop, and complaining about the results.
Ironically though, manufacturing continuity at any cost will inevitably make us (the first world) far less resilient.
Yes , we started slightly earlier but have ensured we maintained parity throughout the cycle....the tail didnt wag the dog.
Which when you consider the nature of the two economies suggests that local conditions are NOT the main consideration when setting interest rate policy....what else possibly could be?
I'm in awe at how this elephant in the room seems to be consistently overlooked by NZ commentators and the general public. And now, the excitement about the anticipated first interest rate cut! History shows it's less "light at the end of the tunnel" and more "brace for impact."
I feel like there are three lessons from this:
1) overall, monetary policy seems to work exactly as expected
2) if the RBNZ don’t act quickly enough when the economy is overheated, then the damage is significantly increased later on
3) the mistake was the ultra loose policy settings, not the tight ones
I still have eyes on Australia. They may end up ok, or they may end up battling inflation for a lot longer than us by not applying the brake so hard. Will be interesting to see which approach works the best overall.
Monetary policy works as expected? Do you mean if you force business and households to increase their interest payments from $20bn to $42bn per year you collapse consumer demand and trigger a major recession with spiralling unemployment? If so, I agree that monetary policy works exactly as expected. Great stuff.
But... countries across the world have all followed the same inflation track (up and down) and many barely shifted their interest rates at all (and some had no choice over rates because they were set by the ECB). Basically the price of energy then food went up, that pushed other prices up, and then when energy & food price increases slowed or reversed, price rises of other stuff moderated. Between 2022 and 2024 the world shifted to a new price level.
Now, the only argument worth having is how much RBNZ caused or slowed inflation compared to the base case 'do nothing'. There is zero doubt that RBNZ juiced the housing market with their rate cuts. Check. And, as David articulates above, there is zero doubt that the rate hikes have crashed consumer demand and pushed up unemployment. But, if RBNZ had done nothing, what would measured CPI have done? My view is that it would have still spiked above 7% and then come down over two years to 3%. I genuinely don't think they have made much difference at all.
Just from my own personal experience in producing primary and secondary goods, I can say it's only been the last 6-12 months where operating conditions are relatively 'normal'. This in relation to availability, delivery timing and price behaviour of any ancillary raw materials and services I need to operate.
Nothing a central bank can do about that.
MAYBE it'd have been even worse operating conditions if they hadn't propped up the economy via all their mechanisms.
Yes, exactly, I got a bit obsessed with listening to logistics / procurement professionals during and post-COVID (part of my job at the time). They all said the same - the untangling of supply lines has been long, painful, and is still facing hiccups. At the end of the day if delivering stuff is less efficient, it requires more fuel, labour time, insurance etc - they're real costs that need to be paid.
with the (possible, but uncertain) impact of a revalued currency....so the other question to be addressed is 'what sets the relative value of the NZD and is it solely interest rate discrepancy?'
I have for a long time marvelled at the demand stability for a currency with a decades long significant trade deficit.
Yes, the FX impact is a big unknown. Would we have had a Japanese like devaluation as other economies had inflation / higher rates, but they stayed near zero?
The demand for the currency is an interesting one. Well over 90% of global trade is currency / financial. So the value of our currency is determined primarily by three factors:
- The confidence that markets have in the value of our currency - sound Govt, predictable / stable central bank etc.
- The return on NZD denominated risk-free financial assets (the humble Govt Bond)
- What markets think our central bank is going to do next.
Remember we effectively close our trade deficit by exporting Govt Bonds. That's why over the last few years, offshore ownership of bonds has rocketed up to around $90bn.
It is the continuing export of government bonds (at rates that dont cover the risk as far as I can see) that is the surprise.....there appears no market fear of significant prolonged currency decline contrary to the fundamentals....which is all good, until suddenly it isnt.
Agree. Some Covid-related easing was probably a good idea given what was known at the time. However since the ultra low rates were only ever going to be temporary (and much of the tightening seen since is really just normalisation), the biggest mistake was not having robust DTIs in place BEFORE easing commenced since without them people were able to borrow ridiculous amounts and house prices inevitably took off - exasperating the pain when rates were raised to contain the overheating
It’s a rule of thumb 1/3 people have a mortgage, 1/3 own outright and 1/3 rent. However the 1/3 who rent have landlords who own houses so surely they would be the most leveraged group? Meaning their mortgages could then raise the impact of monetary policy further than the old chestnut of 1/3 ?
fed rate RBNZ
march 22 0.5 feb 22 1.0
may 22 1.0 april 22 1.5
june 22. 1.75 may 22 2.0
july 22. 2.5 july 22. 2.5
sept 22 3.25 aug 22 3.0
nov 22. 4.0 oct 22. 3.5
dec 22 4.5. nov 22 4.25
feb 23. 4.75. feb 23. 4.75
march 23 5.0. april 23 5.25
may 23 5.25. may 23 5.5
july 23. 5.5
"that November 2022 movement was effectively three hikes in one."
No it wasn't. It was one hike in one. Just as the large cuts on the way down were. There's no magical formula that dictates 0.25% as being 'one' movement. Just as the OCR can be changed on any day the RBNZ feels like. It doesn't have to wait for the next review if it doesn't want to.
It was obvious what the course of action should have been using Monetary Policy = Hard and Fast. The RBNZ should have done a 'one in one' hike in May 2023 of 1.5%. The result would have given instantaneous results, and those 'caught' with expensive Debt of a short term nature would have been spared the dragged-out duration of the OCR rise by a much faster cutting, and back to a more manageable rate level. We'd be over it by now with a much lower OCR, and a chastened economy.
But here we are. Just in the same position, facing the same result = higher property prices to accumulate more Debt to keep a sclerotic economy going. The real answer is just as obvious and what the OCR should have done in '05/23. It's to retarget where our collective Debt goes. And speculative endeavours is not it.
But that's not been addressed. So get ready, for more of the same, and next time; and next time will be sooner than most project, it will be worse. And if an OCR of 5.50% was required this time, just wait to see what it is next time.
It was obvious what the course of action should have been using Monetary Policy = Hard and Fast
It wasn't really. Much of the inflation was supply side related, so interest rates have been fairly ineffective in lowering it.
This whole exercise has illustrated how toothless central authorities are in controlling inflation.
Let's recall that even the RBNZ was writing in 2021 that "we'll keep the OCR at 0.25% even though the pesky CPI is at +4%. We're sure it will come back down if we don't poke it with an OCR rise" - or word to the effect. THEN was the time to move - Hard and Fast. Not when the CPI had escaped. And guess what? It's going to happen, all over again.
But as I wrote, it's not about the Cost of Debt - the OCR, but what we use it for. And Nation Building; Future Proofing, Community Building, isn't it.
I still don’t get how you don’t remember the demand. The queues for the dentist / builder / restaurant/ etc. I guess you could say that’s a supply issue, but I don’t think it was fixed by increasing supply.
And also too much demand for labour (remember the help wanted signs outside every shop?). Again something the RBNZ can control.
I can remember the demand, but I can also remember that we broke a fairly complex global supply chain, and even when we weren't in lockdown, on any given day 1/4 of workers were at home sick or in quarantine.
If we just take building, the time to complete a project doubled/tripled. In such an environment, builders are pretty hard to come by.
The only control the RBNZ has is flying the economy into a cliff. Which is what they're doing.
It was mostly transitory and they could've just reset interest rates to 2019.
We had GDP growth of 6% just after having negative growth. Just looking at GDP figures, inflation and interest rates doesn't give much understanding of why the figures are doing what they're doing.
The worst was -1.4 annual, so 6% annual was more than making up for that. Regardless of what had happened, 6% gdp growth was a pretty good sign of a significant increase in demand that would cause inflation and needed cooling. It was not a time for 0.25% OCR, and yes had the RBNZ raised to pre covid OCR then, we probably wouldn't have needed 5.5%.
By that argument you could say that 9 years of 0% growth followed by one year of 30% growth averages to 3% and the economy will instantly evolve to that 30% growth without any inflation. Unlikely IMO.
You may be right that it was all transitory and could have been ignored (and that was certainly my take on it early on), but it would have been one hell of a gamble. It’s certainly possible (probable) that the RBNZ overcooked their response, but that is a different argument.
The only control the RBNZ has is flying the economy into a cliff. Which is what they're doing.
This was the almost guaranteed outcome of their and the govt actions during the pandemic. And possibly for years before that.
Noone gets to drink excessively for the whole night and avoid spending the next day eith a terrible hangover... and as per a hangover there isn't much can be done to stop it after the drinking session.
Hopefully (after we struggle for a long period) we will find a new way rather than just making credit cheap in a boomand handing out cash.
We are actually a very small little nation in the middle of nowhere without many natural resources or skills ... and trying to pretend our economy can be the same as other bigger countries (who have far more going for them). Guess what.. it simply doesn't work. We have to take a ton of pain, contract the economy to where it 'should be' and live in our means again.
Re supply side drivers of inflation, this Treasury report found drivers of inflation were 1/3rd demand, 1/3rd supply side and 1/3 not clear.
https://www.treasury.govt.nz/publications/research-and-commentary/rangi…
Agreed that given that supply side factors such as increased input costs, supply chain problems etc have been key drivers of inflation, heavy reliance on interest rates hikes is not really cost-effective in terms of lowering inflation . E.g. If there is a significant supply side component, than demand will have to be reduced by proportionately more to push down inflation - and risk pushing the economy into a demand-deficit recession. There is not much a govt can do in the short term if there are significant exogenous supply shocks, unfortunately. However, in the longer terms, govt can work with industry to lower vulnerability to supply side shocks and persistent higher input costs - e.g. addressing market dominance that enables eg building supply businesses to maintain higher prices.
Interesting points.
Keen to explore your ‘next time’ points in your final paragraph. Are you implying here that the OCR will be cut low again, we will have another property boom and high inflation, then the OCR will need to go high again, even higher than now?
I don’t really buy that. I think what we will see is the OCR lowered to a ‘neutral rate’ of around 3%. This will stimulate the economy and the housing market, but it will be only a mild-moderate stimulus. Inflation will not run away again, necessitating aggressive hikes.
This is my central view. But a black swan could come along and shake things up. For example a major earthquake, or an international financial crisis.
There is also an outside chance that the economy gets so bad over the next 1-2 years that the OCR goes to circa 2%, eventually kicking off another mini housing boom.
This seems the most likely scenario imo.
But the mild to moderate stimulus will translate to negative real real estate values, given the political winds seem to be shifting to millennial-style yimbyism (which is a cross party movement), and anti immigration sentiment (which is sad imo, but it’ll eventually win out). The fundamentals aren’t there for values more than 5x household income.
I fully agree with BW's points.
Firstly that the two 0.75% "Covid emergency" OCR drops should have been reversed at the first sign of inflation
Secondly, that we're on our way to another round of low interest rates, higher house prices and more problems.
BTW, the Black Swan you're warning about HM, is swimming in NZ waters now!
According to the RBNZ only about a third of Kiwis actually have a mortgage. So, yes, that means the grunt work of monetary policy is being done by about a third of the population.
When your economy is reliant on a relatively small share of aggregate demand, this potentially shows how vulnerable and unsustainable the drivers have been in the first place. It also illustrates that the NZ economy seems to be reliant on the marginal house buyer - a steady stream of buyers willing and able to take on greater debt and debt servicing. It seems hard to believe and confirm but it appears that if that marginal buyer behavior is removed, the wider macro-economy is as stable as a jenga tower. The Ponzi has become the be-all-and-end-all and the signals are there that even horse trading among the relatively wealthy is not enough to stymie the negative effects of it running on only a few cylinders.
It also seems to me that the economy cannot operate without debt servicing costs being near to zero. Essentially what that means is that the cost of money needs to be permanently suppressed if we don't want the economy to crumble.
My thoughts exactly. The info presented in the article suggests NZ has relied on the 1/3 of households borrowing and spending on their mortgages as the main driver of economic growth over the last 50 or so years. Begs the question of how much renters contribute to discretionary spending in the economy.
I didn't really read it as that, it's just that for the OCR to have an effect, it's amplified in mortgage holders.
In this instance, their demand is being wiped out by high mortgage servicing costs, to try and lower inflation for the entire economy.
Although it's probably worth noting that the 1/3 of households that have mortgages are most likely to be middle-high income productive types - a big component of the active workforce. So hitting them likely has a greater impact on the economy than renters or older folk who are mortgage free.
I didn't really read it as that, it's just that for the OCR to have an effect, it's amplified in mortgage holders.
I think that's like saying you don't want to accept my reckon as representative of reality.
The mighty Jfoe has illustrated that debt servicing costs are ripping through the private sector and their ability to generate income and profits. If the mortgage holders and renters are already spending most of their disposable income, then I think my reckon is close to the mark.
It's not the be all and end all for a start. It comprises quite a decent chunk of our economic activity, but despite house sales volumes and marginal buyers falling away, we are only often experiencing single decimal drops in demand.
And within the context of housing turnover, marginal buyers don't represent anywhere near as much activity as that lost through people that already have a mortgage, who have experienced significant servicing cost jumps.
It's not the be all and end all for a start. It comprises quite a decent chunk of our economic activity, but despite house sales volumes and marginal buyers falling away, we are only often experiencing single decimal drops in demand.
It is the be-all-and end all if you consider the following:
- The nation's wealth is overwhelmingly tied up in the existing housing stock
- Following from the above, prosperity growth needs to come from increasing house prices and share of wallet allocated to shelter
- Credit creation is largely allocated to bidding up house prices relative to consumption and productive enterprise
Yes, worth noting that a high OCR directly increases the cost of mortgages for mortgagors, and increases the cost of everything for everyone. How so? Because businesses and other organisations pass on higher debt-servicing costs to their customers. Interest on business loans went up from $6bn per year in 2021 to $16bn per year a month or so ago. Who is paying the extra $10bn per year? A few billion might have come from reduced profits, but the rest is hitting the pockets of renters, mortgagors, home owners etc.
Total business loans? Around $20bn - from $180bn to $200bn. Initially the loan increases were almost entirely property related. More recent increases are revolving credit.
Begs the question of how much renters contribute to discretionary spending in the economy
Probably more than you think. Renters and low-income h'holds are more likely to spend all their disposable income to non-mortgage holders who own property. CPI inflation not matched by income growth means that less is being spent into the economy. The multiplier effects suggest this negatively impacts the revenue and incomes at those at the other end of the socio-economic scale. There's only a small proportion who it doesn't affect.
Horse trading only covers costs of horses, unless you get lucky its a tough business.
Re Ponzi, yes I think the negative multiplier effect of the house market is falling (or cost of ownership is so high it makes your life miserable)..... is considerable and adds a bit to the effective OCR. People always said do not worry about house debt as inflation will shrink it away, but I cannot see this happening next 10 years, RBNZ will fight inflation hard and use DTIs to limit loan size.
Meanwhile all the FHBer will be able to afford is a NACT Shoebox, that will not work, a big % will goto Aussie. Google salary sacrifice, Aussies have massive advantages.
NZ is very very exposed right now to an external global shock.
NZ is very very exposed right now to an external global shock.
That's basically everyone invested in the global market. Our fortunes are relatively tied together.
If China does shit the bed as many are prophesizing, Aussie salaries all of a sudden won't be worth as much (neither likely will Kiwis, but Australia's economy is even less diverse than ours).
They’re less reliant for both production and consumption.
Why do they do?? Just almost every big tech company, aerospace, automotive, most productive agriculture, most powerful military, most of the world’s entertainment/media, energy (of which they’re independent) etc.
If you look at the numbers, they’re already reindustrialising hard, and have a skilled, young developing workforce on their southern border, if they need it. I think they’ll be alright (whatever geriatric maniac is in charge).
"They’re less reliant for both production and consumption."
Beg to differ....they have made the same mistake as everyone else....their supply chains are as diversified as and will take time (they cant afford) to reestablish...and then theres oil...yes they have light fracked supply (for how long is uncertain) but they still need the heavy to mix and obviously Canada cant supply enough or the correct mix or the ME wouldnt be such a big market for them.
But time is the one thing you cant buy or seize with military power.
Yep.
I think it’s fair to say that, over the last 20 years, the GDP growth has been mediocre unless retail interest rates have been circa 5% or lower. When they get above 5% things seem to fall apart.
Obviously because our economy is so dependent on debt and housing.
And it has simply got worse because of our higher levels of debt.
Housing is not all we have, we do manage to export but import more.....but it appears we are underwriting everything with the sale (export) of residency be it temporary or permanent, and as far as I can see that trick has pretty much been played out....so where to from here?
Adrian Orr wouldn’t know “moderation” or “balance” if it smacked him in the face. Totally disconnected from what is going on out here. He over-reacted during covid when he set rates too low, and left them there too long. Now, true to form, he has overreacted again, setting rates way too high for way too long. Incompetent.
In six months time, the true effect of his mistakes will be undeniable.
Might ultimately an OCR of say 4.0% have done the trick?
Almost certainly had RBNZ been watching the CPI data for Q2, 2021 and started hiking. However they "transitory inflationed" and "looked through" until October unfortunately. By that point inflation had got a long way ahead of them.
This rates cycle had been tougher than it needed to be because hiking started later than it should have done. That said the inflation reads over the last three quarters appear to show RBNZ has finally got a grip on inflation.
I would argue that you really need the alignment of several factors to get to near zero rates. China needs to really stimulate exports substantially, you also need to have a demographic reversal to increase the ratio of workers-to-pensioners and you also need a way to mop up all that credit creation (like a housing bubble.)
To me we aren't back in the same position as we where pre-pandemic.
Well we've got a series of three quarterly reads between 0.4 to 0.6% which is where RBNZ likes to operate. There is some possibility of a trimming cycle starting but likely only if quarterly reads fall under 0.25%.
RBNZ don't typically do well when they try to anticipate future data sets or tune into the vibez. They are dogged by poor forecasting.
I think they over cooked it as much of the inflation was caused by adverse events. Labour shortages and bad weather created supply side issues. The effects of the increases in OCR haven’t even filtered through completely. Annualised inflation for the last 3 qtrs is well below 3% The only reason we have a CPI above 3 is due to taxes and insurance premiums which links back to the bad weather.
My comment was how much money my ATM house made while I was away skiing for a week, according to Junes Rodney figures (includes Riverhead) I lost 21k, that's an expensive weeks skiing. (Although the 3% drop in Rodney has followed 3 months of almost zero drops, either catching up or compositional data this last June I suspect. About to keg a couple of NZ Pilsners and a NZ Pale Ale which have been slowly bubbling away while in Turangi. That makes me feel better not having to buy craft beer for a while. Time to brew again to keep the stocks up.
Its also time to start to plant seeds for summer vege gardens etc, I plant Chilli seeds on heat pads Mid August.
Peoples houses often made more then them for many many many years. People expect hard times in recession, but if there is limited house appreciation after this people will question the wisdom of such large mortgages.
Much consumer behaviour comes down to the sentiment of the population. If your assets (whatever they may be) start turning into liability, only the deranged or foolish won't start acting fiscally conservative.
A lot of countries have been in this state for decades, seemingly now permanent. Our time will come also, when is hard to say. We have a few more strings to pull but they're getting frayed.
Agreed, nz does need more tools to fight inflation than just the ocr.
Making kiwi save compulsory, then adjusting the minimum contribution seems like the best option. It will affect about 70% of the population.
Plus boost our retirement coffers, rather than just removing the money from the economy or boosting bank profits.
My estimate is that even a spectacular 2008 style cut (from 8.25 to 2.5 in 12 months) won't make much difference through 2025. If things play out as they have before, mortgage rates won't adjust anywhere near in proportion. Remember post-GFC, one-year mortgage rates hovered around 6% for three years while the OCR was around 2.5%. I don't think the gap will be as large this time, but still.
There are two other major problems with 'lower OCR - boost economy' hopium.
Firstly, the average yield on mortgages is currently 6.26% and it is still going up by around 7 basis points per month as people roll off fixed rates. So, when rates are cut in August (or maybe November), it will be at least 6 months before that average yield starts to reduce. Businesses will get relief more quickly and hopefully this will help us get CPI down to 2%.
Secondly, once you let unemployment loose, good luck stopping the downwards momentum with floppy-dick monetary policy. The lag between rate changes hitting the labour market is typically around 18-months, and stopping an unemployment epidemic always relies on help from fiscal policy. When RBNZ dropped rates like a stone in mid-2008, unemployment carried on climbing for 18 months - and then stayed stubbornly above 6% until 2013 (Chch rebuild).
When you overlay unemployment through the GFC with today, it looks very concerning. I agree with David above that the Aug 7th unemployment figures are going to be terrible - and even they won't capture the horror that has unfolded since. At the start of July, the net increase in unemployment benefits was running at 200 per day.
What is the chance that this Govt has any clue what to do to arrest the decline? This is not a red vs blue question by the way. I just have zero confidence that they know what they're doing.
Yes, they're asleep at the wheel, and don't seem to grasp the fact that the pain currently being felt by mortgage holders takes time to show up. However, it is undoubtedly showing (with bright red flashing lights) and has been for many months now. They should have started dropping rates at the beginning of the year, not the end of the year - goodness knows how many businesses will have closed (and mortgagee sales processed) by November.
They should have started dropping rates at the beginning of the year, not the end of the year - goodness knows how many businesses will have closed (and mortgagee sales processed) by November.
That would have been contrary to the prevailing wisdom and dogma at the institutional level. It potentially would have boosted export receipts and gone some way to relieving debt burden, but the models would need to show that those positives to be greater than the cost - increased cost of imports primarily. I don't believe they give a rats about the degradation of money and its purchasing power.
Agree that's why even if they start a massive back to 2.5% OCR the bottom of the housing market will not be confirmed for 24 months this time maybe longer this is not going to be globally Co-ordinated plus QE like the GFC, and if things change and that style of Monetary policy is needed, its on the back of a deep global recession that will be the worst of our lifetime.
NAct are going to have to try and stimulate BIG TIME in the 2025 Budget, given the cost of building here in NZ I do not believe the next boast to housing can be anything but low end housing , and I doubt we are going to buy it. Perhaps massive build to let at corporate level?
I do see a few Tiny House parks could well pop up, I see NZ going the way of the US with Trailer parks.
An obvious method of opening up to Foreign investment seems to be off the table with NZ First in power.
Inward investment seems our only hope here. We seem to be out of money.
But are we (out of money)? We seem to have a sh$t ton of money in TDs, for example.
The problem might be more that the money is being left in TDs rather than invested in productive, export-oriented businesses, because the latter are much more hard work and (perceived to be) riskier.
Here’s a question - do the current government think the economy is getting as bad as many of us think it’s getting? It’s looking worse than all the bank economists had forecasted, and probably worse than the government’s advisors had forecasted.
I suspect that things like the fast-track legislation are taking far longer than the government had thought, with far more opposition than they expected.
I think they are going to be found out, and I will be interested to see what their support levels are like in 7-8 months when the economic problems are even more apparent
The people advising govt were still on the 'cut spending to tackle inflation' nonsense in April - cheered on by the commentariat obviously. I don't see how they can climb down quickly from that position without looking like fire-able fools. Nor do I see how this Govt with all of their back to surplus BS can pivot to doing what is needed. But heyho, down we go.
I love your plots!
you nailed it.
Unprecedented rate increase (2100%) over a short time + longest period at peak (15months so far) + long and variable lags = huge demand destruction -> unemployment -> more demand destruction -> more unemployment -> debt defaults -> deflation
This time around its become evident that the tool(s) rbnz have to correct inflation have limited impact as there are so many economic factors outside of their mandate. Look at insurance as an example this is exempt from the pain caused by Orr. Something needs to change where we are not punished for bad decisions made by those in powerful positions
When we studied statistics as part of maths at high school 60 years ago we were told that any statistical survey must be both reliable (consistent) and valid i.e. it must be so framed that it measures just what you intend it to measure.
The inflation numbers we are now getting through the media are not valid. Take non-tradable inflation. They are simply not measuring true inflation because we are getting the wool pulled over our eyes when it comes to buying almost anything but vegetables at the supermarket duopoly. The vegetable and milk prices are not to bad but on venturing into the main body of the supermarket inflation is terrible. I estimate that true inflation in this latter area is running anywhere from 15% to 30%. But the worst of it has just happened in the last couple of weeks or so. I have observed it happening but I have had this confirmed by a recent article in one of Consumer NZ's emailed articles I regularly receive. Read what follows:
https://www.consumer.org.nz/articles/shrinkflation-companies-giving-you…
That "shrinkflation" is real inflation I suggest is being ignored by the RBNZ governor, the statistics department and the committee who advises Orr.
In no way are we ready to reduce the ORC rate until this nonsense is addressed.
And in fact, given mine below, the OCR needs to be RAISED at the August review, as a reminder that the work is not yet done. If that doesn't happen (and the chances are pretty much zero!) Debt loads are going to increase and the capacity to pay more - for everything - is going to increase , and so are.....prices...
I estimate that true inflation in this latter area is running anywhere from 15% to 30%.
Indeed. When you see a price increase of 50c on a $3 item you may not think much of it, but bare in mind this is a 16.67% hike in price which is huge compared to reported inflation. Now add that same item went up by 30c 6months ago and then factor this applies to perhaps 80% of your weekly shop and it’s plain to see that there’s wither greater inflation or price gouging.
Someone tell me about Swallows and Summer again, and that we'd 'have to wait and see' if The Only Market that Matters to the New Zealand Economy had turned (for the worse) last Friday, 19th July 2024. Here's what happened and there's more to come:
"Previously, it was like, 'I can take my time, I’m not in an urgency to buy because possibly I can buy cheaper in two or three months.' Now, the thought is, 'I better buy because it might be more expensive in two or three months." He had received two enquiries from first-home buyers within an hour of one of his listings - a three-bedroom home at 1/10 Ranfurly Road, in Papatoetoe - hitting the market on Friday....“Say we are at 7% at the moment and we drop to an interest rate of 6%, the amount of borrowing that you can do increases by a good percentage. You can borrow 15% more for the same cost,. The ability for people to get those bigger mortgages and service them increases, and because people can get more money, they will pay more and stoke the market.”
https://www.oneroof.co.nz/news/eight-interest-rate-cuts-in-a-row-market…
They are discounting the "Oh shit I may lose my job" dynamic... that occurs in all recessions.
Sales are low, agents are not printing commissions and now vendors are sick of the market and delisting... agents see a very dark Q3 re sales numbers.
This is the best part
You can borrow 15% more for the same cost,
like you do not have to pay off the extra 15% capital....
Timaru's main two economic drivers are the large plains of farmland (dairy, and meat, Timaru has a large freezing works plant = abattoir) and its port, the second biggest in the SI after Lyttleton. We host NZ and international travellers, tradies, corporates and because we have size, many sports groups, school outings or other events and, since the lockdowns, a maximum 1/3 of emergency accommodation.
I agree too. Our problem is asset prices being too high - unsupported by the associated income streams.
I recently looked at buying a business this is struggling, losing money, and in discussion with the landlord about halving (!) their lease costs. I pointed out that even if the landlord agreed to that significant haircut they'd still be losing money.
The landlord doesn't want them to close, given several other vacant tenancies in the new build 'town centre'. Wouldn't be a good look for the next four tranches of residential housing they also plan to build...
So, here's the logic path - business revenue is insufficient because they don't have enough customers because the house prices there are too high + commercial lease cost is too high because commercial build cost is too high - and all of those are significantly driven by high cost of land.
Land cost is too high for the residential owners to be able to afford houses based on the incomes they earn.
Ditto for businesses/commercial property.
The fundamental problem is too high asset prices and too much debt.
Current interest rates are not the underlying problem.
Great article David, from your warning two years ago about this "experiment" and about the "OCR hikes catching up all at once", to your conclusion of today "I’m increasingly of a view that we need to find a better way of keeping our economy on track than simply targeting inflation, and doing so with an instrument as blunt and hard to measure as the OCR.
Whilst it's true that only about a third of Kiwis have mortgages, I think the economic pain is more broad based because
1) inflation is hurting people at the lower socio economic end who struggle to make ends meet.
2) reducing house values has a negative psychological effect on all home owners, not just people with a mortgage.
The consequence is that many more than a third of the population close their wallets.
"reducing house values has a negative psychological effect on all home owners"
You reckon? I am a home owner, and lower house prices is exactly what this country needs. I'm in full support of that. And guess what? So are a lot of other home owners, who are commentators on here etc., who look at their own and other people's children struggling with the cost, or even the capacity, to do as I and they do - own their own home and raise a family.
It's because we are so scared of property prices falling that we don't do what has to be done. And if we don't, as we so often see in other places, Mr. Market will do it for us, as he always eventually does. (Have a look at what's happening in China this very day. It makes Ireland of ~15 years ago look like a poor attempt at rebalancing.)
"I am a home owner, and lower house prices is exactly what this country needs."
This may well be true, but it doesn't stop many home owners spending less, because their house is worth less. I actually agree with most of your posts on this article, but what needs to happen, and what is happening are two separate things.
Sound familiar?
"The unwavering belief of Chinese home buyers that real estate was a can’t-lose investment propelled the country’s property sector to become the backbone of its economy.....This sharp loss of faith in property, the main store of wealth for many Chinese families, is a growing problem for Chinese policymakers who are pulling out all the stops to revive the ailing industry — to very little effect.... the downturn, already the longest on record, is not only dragging on — it is accelerating....The key thing to watch in 2024 is if and when the central government would step in and take the main responsibility to stop the contagion, (What the PBoC needs to do is cut the OCR! Problem solved. Oh. They tried that already. Now what?)
https://www.nytimes.com/2024/01/30/business/china-evergrande-real-estat…
My understanding is that banks were advising potential mortgage applicants long ago that rates could or would rise when rates were reasonably low and some banks went further indicating what future payments could like 2 years ahead...Todays herald article cites a RNZ report...'extravagant prices'/'outrageous prices'...price drops of 20%... it proposes that there are a group of people selling essentially before the banks muscle them to do so...Lets see what these folk would be doing if the market kept rising , my guess is they would be banking CG's and playing Russian roulette on their next investment...problem is many of them didnt figure in their wildest dreams they would get caught out. The idea that the market could only have kept rising was a fools vision and even the bankers knew this. Now we have plenty stuck in a rut howling at the moon (RBNZ) but fact is all the players played themselves and those that are 'stressed' gambled on a run that built risk the longer it ran .
So todays article says hold on for a few more months and the heat will melt ...But fact is ...it doesnt happen like that...it takes time for any adjustments and risk to reduce...the idea that some miracle overnite huge rate drop will rescue all and sundry in the next few months is 'media fluff'.... More likely it is that too many folk jumped on the get rich quick dream and the FOMO effect has diluted the pool of those with sufficient capital to play in the RE sandpit for sometime. The other factor at play is the sharks that circle the RE Titanic ...knowledgeable experienced players that know what RE value is...and until the market can throw up enough RE value to entice the sharks....'media burly' wont cut it.....savvy investors know time is on their side.... Buy low and sell high...nothings changed regardless of the OCR.... Let us not even consider what the banks risk forecast looks like but I would imagine they are not comfortable either so will be siding with those calling for rate drops ... but can they find / finance buyers without creating more risk even with slight drops ? I doubt it. More likely the call will go out for imported wealth...but will they come today ? It is very much a cashed up buyers time and the smart buyers will fence sit waiting for a price trigger point that suits their individual aspirations ,Time certainly is on their side presently .....my 10 cents
https://www.nzherald.co.nz/nz/kiwis-moving-to-sell-homes-before-their-b…
.'media burly' wont cut it.....
cold hard yields will, it will be pretty ugly as so few have any equity to enter....
Markets can fall...
At the start of 1987 the sharemarket bears gained an unusual ally.
When former Prime Minister Sir Robert Muldoon took the podium at the Orewa Rotary Club for the 19th year in a row, the surging stock market sat squarely in his sights.
Advising investors to at least pull half of their money out of the market high-flyers, he described what he saw as a "speculative mania" in the growing divide between share prices and their fundamental value.
The investment companies that bore the brunt of the collapse were starting to "look uncomfortably like a form of pyramid selling scheme".
"Until such time as you realise your investment, you do not have a profit: you merely have some satisfying figures in the daily papers. If [having sold half] you lose the rest, at least you are still ahead on the deal," Sir Robert said.
In hindsight his observations are startling in their accuracy. Nine months after the speech, on October 19, the sharemarket plunged 4.3 per cent, kicking off what markets around the world would come to know as Black Monday. And that was just the beginning.
Over the next three years the sharemarket lost more than two-thirds of its value, the fall setting the stage for a string of corporate failures and law suits.
But the day after Sir Robert's speech the market pundits dismissed the gloomy predictions.
Alan Bertram, an investment manager at the then AMP mutual society, told the Herald he agreed the sharemarket had hit a danger zone. But he insisted there would not be a serious fall. Instead investors would need to be more selective in their buying.
Another broker noted leading firms' price-earnings ratios - a key measure to judge whether stocks are cheap or expensive - were not out of line with world standards.
Five days later, financier David Richwhite said one or two investment companies would not perform, but there was not a bubble that would burst.
"In 1987 and beyond companies will have to start producing profit and results. Going into 1988 the men will be sorted out from the boys," Richwhite told the paper.
In short, the weight of predictions, as the subsequent market rallies suggested, was wrong. It is for this reason that few of those who lived through the crash are willing to be unequivocal, although they agree the conditions that gave rise to the crash 20 years ago are not present in today's market.
Sure the market has had a strong run over the last couple of years. And its historic price-earnings ratio - a key valuation measure - now stands at around 20. This compares with an average of around 11 at the time of the crash, suggesting shares are now more expensive than they were back then.
But that, according to former Brierley Investments chief executive Paul Collins, is where the similarities end.
"While the market has been very strong in the last couple of years it bears absolutely no resemblance to 1987. We have much stronger fundamentals. And while the market probably got fairly fully priced and valuations are higher than they have been for a long period of time you still have quite strong fundamental earnings and you have balance sheets that are not overly geared."
The weight of opinion is with Collins.
The crash followed a confluence of unusual factors, the most important of which was the deregulation of the financial sector by the Lange Labour Government.
This led to an explosion of credit and a frenzy of lending - often at the expense of a robust examination of credit quality. And it came during a time when the country's economic fundamentals were not great.
Running alongside this newspaper's market report of the sharemarket crash is a Westpac advert hawking a deposit interest rate of 19 per cent - a figure suggesting borrowing rates that would cripple most of today's businesses.
"A lot of New Zealand shares never recovered because they had no foundation to recover from. They invested in virtually any stock that moved," Collins said.
His point is underscored by comparing the sharemarket leaders at the time - heavy with companies that benefited from the sharemarket boom and whose profits largely relied on the cash generative properties of their investments.
Today's market - for better or worse - is entirely made up of companies that are strongly cash-generative businesses in their own right (see table, C16).
At the same time regulation around securities markets is now much tighter. Rules designed to protect investors from insider trading, disclosure of market-sensitive information, takeovers, and financial reporting standards, among other things, have become much more prescriptive and have reduced the risk that the excesses of the eighties will be repeated.
And sharemarket scrutiny by the banks of analysts and professional fund managers is now much more robust. "In the eighties research on companies was pretty flimsy," said one broker at the time.
"The expectation is now that companies should stick to their knitting and if they come up with any blue-sky ideas the market punishes them."
And now there is the memory of the experience.
Rod Petricevic, founder of crash victim Euro-National and now head of private finance company Bridgecorp, says anybody who was still in business today and operating under the current market conditions is better for learning from the experience of it all.
"We're older and wiser for the experience. And investors are more savvy. We survived and in the process learned the hard lessons of the eighties and business is better for it."
Collins adds: "It taught us not to carry excessive debt. At Active Equities [his new company] we carry no debt at all. I know a lot of people who borrowed excessively on shares. I went into the crash with no debt at all so my focus on [BIL] could be total."
That said the class of 1987 remain convinced that the potential for investment bubbles will always remain. Without exception they highlighted the potential of the residential property market and the boom in private equity funds - which invest in private firms - to burn investors in the future.
Olly Newland, founder of the now defunct property group Landmark, says despite the regulations the market will always find a way to get ahead of itself.
"Do you really think [regulation] makes a difference. I think human nature is constantly looking for a deal. I think the investing public is just as mad as ever. When you can borrow 100 per cent to buy a home, even 110 per cent. I think that is daft."
Allan Hawkins, former head of the now defunct Equiticorp, believes the current property boom is a hangover from the crash. "The banks have got so burned now that in a lot of cases they do not want to know about anything other than property."
There was nothing that would prevent similar things happening now. "The market is the market. It will go off on a tangent and there is nothing you can do about it no matter what rules you have."
Sir Richard Carter, grandson of the Carter Holt Harvey founder, says things come in cycles. "History does have a habit of repeating itself."
Where they are now
Ray Smith
* Then: Founded Goldcorp with the merger of the Auckland Coin and Bullion Exchange and private property interests and floated in 1987. It went receivership in 1988, holding less bullion stocks than the amount Goldcorp had undertaken to hold for or supply to its customers. Smith was later jailed under bankruptcy laws.
* Now: Believed to live in Queensland, with interests in property and technology.Rod Petricevic
* Then: Founded investment group Euro-National. It took complex positions with other glamour stocks including Ariadne, Renouf Corporation and Kupe, but when the market crashed, those put options were worth considerably less than was at first hoped. Euro-National survives within the CDL group of companies.
* Now: Devotes his energy to his private vehicle, finance house Bridgecorp.Sir Frank Renouf
* Then: Founded Renouf Corp, after a long history in stock broking and investment banking. But the firm was hit by share deals with Bruce Judge's Judge Corporation and Rod Petricevic's Euro-National Corporation in the crash. He died in 1998.Michael Cashin
* Then: Chief executive of Renouf Corp, from which he resigned just before the crash. From there he joined the professional director circuit and held positions with Housing New Zealand and Capital Properties.
* Now: A director of the recently created Cavotec MSL Ltd, and Ryman Healthcare, among others.Bruce Judge
* Then: Former BIL investments executive, Bruce Judge took unknown quarry company Ariadne from nothing into an Australian top 25 company in five years. But his convoluted web of companies in the 1980s destroyed or diminished some of New Zealand's finest corporates, including NZI Corp, Rothmans, R&W Hellabys, Donaghys and Alliance Textiles.
* Now: Chairman of finance house Impact Holdings, which is listed on London's AIM market.Sir Richard Carter
* Then: Chairman and chief executive of wood products group Carter Holt, the firm founded by his grandfather. He left the firm in 1992, just after International Paper of the US bought its controlling stake.
* Now: Since retiring to his Ararimu property south of Auckland, he remains involved in his family's varied interests, including farming, and lumber.Olly Newland
* Then: Newland formed Landmark Corporation as a listed property investor in 1982. By 1986, it was making a profit of nearly $10 million and had assets of more than $450 million. But the company fell into receivership after the crash.
* Now: He runs his own property development company and moonlights as an author and television personality.Sir Bob Jones
* Then: Head of property company and sharemarket titan RJI. It later became Trans Tasman Properties.
* Now: Runs his own investment company out of Wellington and has recently appeared on television in Dragons' Den.
Where's that RBNZ inquiry the Nats promised?
I really, really want to know why the RBNZ:
a) decided dropping the OCR 0.25% was a good idea.
b) decided so much additional stimulus was warranted at the same time
c) left both the OCR extremely low and kept the stimulus flowing way, way past the point when inflation was an obvious and inevitable outcome
d) refused to normalise (raise) quickly - jumps of 1.0% or more - when it was blindingly obvious it was necessary
e) refused any normalisation (lower) process from 5.5% even as inflation was coming down and the economic damage was an obvious and inevitable outcome
The RBNZ has never - except in weasel words or as a bunch of 'reckons' - explained itself.
It continues to believe we were in 'uncharted' waters. Well, guess what? Captains navigating through uncharted waters go slowly and carefully. Why didn't the RBNZ? Was group of drunken sailors at the helm?
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