KEY POINTS:
Homeowners are bracing themselves for further mortgage-rate rises following Reserve Bank Governor Alan Bollard's decision to raise the the Official Cash Rate once more. It now sits at 8.25 per cent.
Here is the latest selection of Your Views:
Ian Morine
I just about choked - who seriously thinks John Key is going to do anything to drop interest rates, that would go against everything him and his "currency speculator" mates would ever desire. Just like saying a rattle snake won't bite you! I absolutely agree with John from Chch, another of our problems are our wage rates here. NZers have to borrow to buy anything substantial, thus becoming a vicious circle. National's "Employment Contracts Act" of the 1990's did more to widened the gap between NZ and the Aussie pay rates than anything else - that also makes me choke whenever I hear a National MP getting up and talking about the widening gap between NZ and Australia pay rates. "You reap what you sow!"
B G Llewell
We have been told from numerous sources, including both the Government and the Reserve Bank that it's our infatuation to property that has created the current inflationary pressures that has pushed up the official cash rate.
Ironic that the Governments own addiction to property has been the catalyst of the current exchange rate squeeze that our exporters are currently experiencing. The current Government see the existing national growth rate, driven by property growth as an affirmation of their successful management of the economy. This is obvious a false dawn as one can not expect a house to create jobs or anything other than inflationary pressure, as it rises. However, Cullen and co are more than willing to continue to let property prices increase by practically encouraging secondary property investment.
If the government was serious about working a solution to helping our exporters and helping its working class that, lets face it is Labour's core constituency, it would actually tackle the housing market. However, it seems that this option is 'political suicide' and knowing it has the working class/union vote by default, it alienates these same peoples as to con the middle class/property investor in believing it is investor friendly.
The governments own infatuation with property is obvious to see, or else why would they allow limp rules on capital gains tax and depreciation tax right offs to continue?
Dan (Simi, California, USA)
The reason for the rising dollar is not the falling US dollar. Inflation in NZ is the cause. Cullen's answer is raise interest rates. This is the cause. Investors are taking advantage of the highest paid interest rates in the world. Kiwis have had a luxury given to then they have not had in many decades. This is the availability of products that were never in stores at affordable prices. As a result credit card levels have risen. Interest rates on out standing C/C balances should be made painful. This would slow spending. Outside investors should pay a heavy tax or be bared form buying property as this is the reason housing has and is out of control. The government has been spending way to much money on useless and none essential services. Since the national tax payers keep the government in cash the least the government could do is look out for there own. NZ is the last unspoiled place on earth and it is been given away to investors who only want one thing, more money and worker bees that just do as there told.
Auckland
I am just glad that the Rugby World Cup 2007 is on Free to Air TV as I will be cancelling my SKY subscription in order to pay for my increased mortgage repayments. Go the All Blacks.
Tony Mcmillan
I have finally worked out who the Governor of the Reserve Bank reminds me of; Robin Hood's evil twin brother. Take from the poor (average New Zealand worker) and give to the rich (overseas and NZ investor). What other possible explanation is there for raising interest rates yet again. It appears to me that Dr Bollard has little regard for the pain being suffered by New Zealanders ( workers and export companies) while nameless foreigners earn huge rewards in this country. Let's be honest, only a proportion of the population (those with mortgages) is being punished while many reap big investment rewards. Who is the Reserve Bank actually working for? I get the impression that the Reserve Bank will only be satisfied when the economy is in recession. Can someone please explain; is there something wrong with full employment and growth? Finally, a public challenge to Dr Bollard: I challenge you to a full open debate (here in Auckland) to discuss the rationale behind your actions? Maybe the Finance Minister would grace us with his presence as well?
John Birkbeck
More than ever it is clear NZ is run by imbeciles. Raising the cash rate failed to curb housing costs or consumer spending, but they continue to try this failed action. The rate only benefits foreign speculators and fuels consumer spending. We need to attack the specific issues: for housing, raise the per cent deposit, and have a capital gains tax on non-residential property; for credit, limit borrowing and require repayment of a substantial amount of credit card spending each month. It is clear the public have no financial sense: they must be forced to be more prudent. Windfall profits for dairy farmers should be substantially taxed unless used to retire debt.
Alistair
Though a regular visitor to New Zealand I live in the UK and have a commensurately higher income than I would have for a similar job in NZ. Because of this disparity in earnings NZ property is seen by myself, and many other overseas investors, as cheap by international standards. I do wonder why you so easily let me, and other overseas investors, buy your properties with no financial penalty and, when we've purchased them, take them out of the reach of a New Zealand citizen?
London
Looking at the not too distant future, I can say that raising interest rates will be a good thing for long-term landlords. Shortly there will be less investment in property overall as many stretched householders and landlords are forced to exit the market (simply due to unfortunate timing in the cycle and bad government policy). Interest rates are always very slow to come down in NZ. This will create exactly the same market conditions as the late 80's, when there was a crisis in the availability of rental accommodation. Rents will quickly rise to extraordinary levels in relation to the current market rates. It has all happened before and history has a nasty habit of repeating itself - if you do not heed the lessons. You, of all people should know this Mr Cullen. Landlords will no longer be providing the state with the public service of low cost rental accommodation and rents will at least double. Get out your hammer & public purse Mr Cullen as you are going to have to build more state housing for an increasingly poor & desperate population. On the up side all this building will at least give the swelling numbers of unemployed some form of work. Labour governments have proven time and again to be a danger to the long-term public good.
Peter (Auckland)
I can see only one reason to raise OCR now. To drop rate dramatically next year some time before election. National did exactly opposite (increased OCR short time before election) and lost. It is pity to see whole nation to keep hostage for pure political gain.
Big Mike (Westport, USA)
I suggest Dr Bollard takes time to reflect over the weekend while he is washing his car or mowing the lawn on how badly he has handled things. We know he is tied to inflation target limits but he can't have it both ways. If the problem was a problem then he should have raised rates by more earlier, a shock .5/.75 way back would have done the job and even probably meant that rates would not have been at this level and could even have been falling by now. If no problem really exists or he kinda feels it's showing some promise' why meddle around, he should have left things unchanged. NZ should be happy with low unemployment some capacity constraints and some foreign property investment and inflation below 3 per cent. The relative small economy needs stability in its exchange rate and most certainly not an 8.25 per cent interest rate. I and a great many others think your policies are wrong or at least very heavy handed.
Pete.G
NZ looks like it's heading for some hard knocks, financially. The word mortgage, is a French word, meaning; death grip, and that's what people who have mortgages (rising interest)have on their whole financial state, Also " the borrower is servant to the lender" many people only have a stake or share in their home as the banks hold the title of ownership, until the mortgage is fully paid. There are several areas, of major concern, regarding salary/wages paid in this country, hence many skilled NZers, leave for Aussie, UK, etc. The majority just do not earn enough disposable income, to afford the rising cost of living, Simply you can? Earn more money, (in relation to your skill) in Australia, etc.
Robert Leivers
Bollard's decision (was it his alone?) Given all the heightened expectancy, perhaps he couldn't have done anything else. I'm sure Dr. Cullen is greatly relieved by the tone of Dr. Bollard's statement as it may well have got him out of a tight corner. Just one query: if Dr. Bollard had made the same "end of the road" comments at the time of the last rate increase, would it have had exactly the same effect? In other words, was there actually a need for this latest increase or had Dr. Cullen's press threats talked Dr. Bollard into a rate increase obligation? It could just be that 7.75 per cent OCR might equally have been sufficient if foreign speculators had not been encouraged to expect subsequent further rises? Continual and rapid quarter point increases allow very little time to assess the economical impact of the rate rises and is rather like a hefty pull on the tiller every time a slight course variation is required (- not ideal seamanship?) and perhaps Dr. Cullen may even be taking on the role of Canute as he threatens the tide of foreign speculation? Hopefully for all, this is the end for now, until the next time around on the OCR rollercoaster, of course!
Kiwi Boy (Perth)
Is immigration and population rise being talked about in the same instance as housing inflation and increased borrowing on mortgages ? Seems a simple answer to cut right back on immigration to slow the housing inflation and therefore borrowing, which would then ease pressure on rising NZ $.
RJ
Government: "Kiwi dollar is stronger Because US dollar is weaker"?
Answer: US dollar is weaker because the biggest bubble in history. The housing bubble has started to sour already in the USA. Otherwise, why has the US dollar gone to historic lows against UK pounds as well? Think: Maybe there's a global housing bubble happening. But the ripple effect has not started?
Next: Don't say you were not warned when the bubble bursts.
Donna
I only wonder, if we allow an overseas investor to purchase Auckland International Airport, would this not also drive the dollar up..?
Mark my word
Increased Interest rates.Lockouts. Dirty money. Climate change.Globalization.Privatization.
Where does that leave the ordinary New Zealander?Lies,lies, more lies.Conned out of our silverware - privatization. Real impact of globalization. Huge foreign ownership through a law change. Not enough. We want total exclusivity - our mission.Our aim. Yes.High dollar, high interest rates. We're fully protected. Rake in more,fleeze the state,increase our wealth.Now climate change-lets line our pockets. More interest rate hikes.Again.Manna from heaven.Let us reign!Hold the country to ransom,flaunt with the dollar,property, court politicians and leaders - Mmm.. we thrive! The Councils.They'll help.The undesirables.Elements.These people.Force them out.Increase their rates! Booted!Ordinary NZealanders? Kick them in their guts.Let them spiral.Downwards.Restructures.Low salaries.More poverty. Fill the jails. Stay down.Suffocate.Lower!No, don't lift the standard of living. They are not worse off..use statistics....We'll feast at the table. Oh, no, they want our crumbs.For Heaven's sake. O.k, lets throw them a few - Now continue the feast.Welcome to the new New Zealand!
Fraser
Am I the only person who sees what is happening? We are told to keep a hold on inflation we have to have high interest rates - which as we all know promotes a high NZ$? As stated before, the government does nothing to curb unnecessary credit availability ie. credit cards or consumer finance. It suits the government's cause to have a strong dollar and high interest as it attracts currency investors to the Kiwi dollar. It keeps imports cheaper than they would normally be and so the lower wages that we receive here are largely forgotten. More like a National policy than Labour. House price rises are being blamed for their policy, but as the $ falls and product prices rise just watch inflation hit the roof.
Stu (AKL)
This increase in OCR is a good news to me.I don't own a house, coz I can't afford the ridiculous price. In recently few years the house price doubled (or tripled) and my salary didn't. Now I'd rather put my money in the bank to earn high interest than paying bank high interest for mortgage.I work in retail industry, and I buy things from overseas. Increasing exchange rate is just what I want. However I believe trying to cool down house market only by lifting up OCR is not enough. Government should do something as well. I remember some time ago I read an article on NZHerald, the title was "Houses in NZ are not expensive" (or something like this). It was about an American couple bought a nice house in Northshore. Of course houses here are not expensive for people earning US$ of UK pounds. Government should setup some barriers to prevent overseas rich people driving up NZ house price.
Ally (Auckland)
I am very frustrated with the interest rise yet again.We have two mortgages as are trying to provide for our retirement with an investment property but may have to end up selling this due to the high interest rates.The government is telling us to save more but that money is going towards the mortgage, power, rates, insurance, water, petrol etc, etc. Then we are supposed to put 4 per cent of our earnings into KiwiSaver, where I am to get this from I don't know. I am a nurse and our contract expired 7 months ago so have not seen any increase in my pay to help with providing for my family let alone save. Things have got to get better or else Australia is looking very attractive.
Ben
Good move Bollard. The sheep need some fear struck in to their hearts. Get the businesses to lay off some people, get the job security wavering and tame the credit boom. Fresh faces at the dole queue is what is required. We simply can't continue this rate of growth by shaving costs here and there, I need new workers and they just aint out there. They're all happy in their jobs, re-mortgaging their houses and buying new cars and big screen TVs. One more hike should do it, a year or so of people getting out their violin's and we'll be ready for a healthy rate cut to stimulate the next growth cycle.
Lewis (Auckland)
Don't blame Bollard. Blame the mismanagement of government spending by Michael Cullen who taxes us to build his war chest with which to pay out bribes to us in the forlorn hope of being re-elected.
Bren
I'm happy for the rate rise, I can sit back spit out some more kids I can't afford and still let the workers of the country support me, thanks to Labour I too am a bludger of society so they get my vote, I'm off to eat a nice hot Big Ben pie and a fizzy drink to rebel, may even watch the History channel and then go for Cullen's ministerial job, surely no one can screw the country more than he has.
One Salient Oversight (Newcastle, Australia)
Imagine a man who is living beyond his means and borrows money to cover his expenses. At some point, this man's interest payments will become so high that the proportion of his income that he spends in debt repayment results in poverty. In order to prevent this slide into poverty, the man must cut back on his spending and begin to spend less than what he earns. As each subsequent payday goes by, he owes less and less money and is able to pay back his loans more easily. Moreover, he can also afford to spend more as a result of his debt reduction.Just as this anecdote applies to one man so it can apply to an entire economy. If New Zealand is to stop itself from sliding into debt it must reduce its spending. The best way to reduce spending is to restrict the money supply, which means that interest rates must increase. Despite the extra value this gives to the currency, the effect of higher interest rates will be to reduce all forms of spending, including goods and services procured from overseas.
Adrian
For the last 18 months I've been struggling to pay my own housing loan plus "top-up" the payments on my sole rental property (the rental income doesn't cover loan interest). This latest rates rise is the final straw. I'm going to stop working so hard to subsidise somebody elses living costs, sell my rental property, and with the proceeds buy a plasma TV plus reduce the debt on my own home. My tenants will now be faced with eviction approximately a month or two before Christmas in an area where good rental properties are hard to find. Is this really what Bollard wants?
Think Ahead
It amazes me that the housing sector of our economy warrants a eate rise for all of the market. Why don't these highly paid financiers target the problem at hand by charging an extra levy for mortgages only till the housing market cools; while leaving the interest rates low for the rest of the market? This would cool down the housing market, help our exporters, restrict expenditure by buying foreign goods with the cheap dollar and stop the currency from spiralling into the doldrums. Furthermore the levy collected by the government through could also pay for national infrastructure! It really isn't rocket science!
R (Auckland)
I wonder if Alan Bollard realises that for young adults he is not stopping spending but fuelling it. With the recent interest rate rises, I have realised that the dream of owning my own home will most likely never become reality. So, what do I do with my disposable income? I spend it on living an extremely comfortable lifestyle. Until interest rates are back around 7 per cent and house prices are static while I get a pay rise, this will continue to be the case. This latest rise has nearly pushed me over the edge...I'm ready to leave New Zealand. Good one Mr Bollard, you've convinced another educated Kiwi to go.
Bri Ak
This Government is giving me the biggest laugh on monetary policy I have ever had. Save your money they say (so we can get more tax from you) Buy property (so we can give the banks more money) Raise the interest rate (so our beloved foreign investors can take more out than they put in ) Go for the Kiwisaver( so we can have your money to invest for our profit - so we can buy votes again ) I have seen 20 per cent+ interest rates and paid out mortgages more than half my income - it was not good and really only served the ego of the policy makes. It kept me and my family for many years without a holiday or meals out or entertainment or new clothes for some time. Now as a super I can see my fixed income being further eroded for what? To satisfy a history teacher's misguided vision of a socialist world. Bah Humbug the lot of them
Ivan Gillatt
It won`t make a great difference to me personally. I am concerned about the impact it may have on the economy. In some areas of the industry I am in there are already signs showing a significant slow down in discretionary spending. I believe they would be better served to look closer at the LAQC situation. I live on a lifestyle block and run it basically as a loss making business which then allows a significant positive personal tax position, which is totally ridiculous. I believe people buying investment properties should be prevented from qualifying these properties for a LAQC scheme. This would cause a number of people to reassess there investment position.The irony is that the government has been telling us for years to start looking after ourselves for our retirement, and now Mr and Mrs Average have started doing that and now nobody likes the consequences.I feel for the people on an average income, trying to raise a family in there own home and doing everything right. They are the people who are going to hurt. These are the very people who put the Government into power in the first place.
Michael Norris
The sooner we get a change in government and a finance minister who can see the bigger picture outside the somewhat anal desire to control inflation at the expense of every other consideration, Then the sooner NZ will be back on track to maintain a balanced economy where manufacturers are valued and given due recognition in financial decisions the government takes. We have the highest interest rates in the developed world, yet the real beneficiaries are the overseas speculators and bond holders who will desert us just as quickly as they took us up, when the pendulum swings the other way.The finance minister has the power to override the reserve bank's mandate to focus on inflation, by considering other key parts of the economy, such as manufacturing and exporters, who must take long term views to do their business.This rate rise sends out all the wrong signals and will do little to curb consumer spending. Cullen and co look like rabbits caught in the headlights and it is clear they have no clue nor wit to do the obvious - halve interest rates at a stroke and rein in bank mortgage lending for housing by adjusting the ratios banks are allowed to lend per sector.
Hurting
In the last couple of months my council rates have gone up, my milk and bread a staple diet of most kiwis has gone up, my electricity bill has been increased and gone up, my gas (sales tax for the govt another stealth tax) to pay for roading costs etc has gone up. My doctors bills have increased and gone up. I hope Bollard gets the picture and also the govt in their ivory towers gets a good picture and understands my cost of living has gone up! Now my repayments of mortgage has gone up too. I have not had a pay increase in a couple of years. Bollard thinks me Joe Average is over spending. I am doing the opposite trying to cut back my expenses. My credit card shows I am over spending because I am hoc using my credit card to finance my standard of living. Why should I be penalised by speculators. I am try to make ends meat. Bollard needs a reality check.
Cpt Vlad (Auckland)
It's disaster. Some economists predict mortgage rate up to 12 per cent or over. I will not have other option as to sell a house. A dream of all life ... Actively looking for overseas job in a moment and thinking for another immigration. Not the best feeling after 9 years in NZ. Especially when you are 50.
Alan Wilkinson
Problem: New Zealanders have too much money left even after the government has taken half of it in tax. Solution: raise interests rates so New Zealanders pay extra money to Japanese lenders. Problem: high NZ dollar ruins exports. Solution: throw NZ dollars into huge currency speculators' pockets. Problem: housing is unaffordable. Solution: raise interest rates and make mortgages more unaffordable. Problem: NZ productivity is falling not improving. Solution: employ more bureaucrats to create more regulations.
Please explain how any of this makes economic or any other kind of sense?
Given that the government is a giant vacuum cleaner sucking up our time and money, will the rush to emigrate be won by exporters or workers? Currently it seems a dead heat so the labour market stays tight.
Murray M
Whingers, stop whinging. Yes we have a degenerate government. Yes the rates have gone up, but hey, its also our responsibility and that is something whingers and complainers cannot do, acknowledge and accept their own responsibility. It is possible for today's eighteen year old to become a millionaire by the age of 35. Twenty per cent will because they believe they will. Eighty per cent won't because they say it can't be done. And why do they say that? because each one of them has no vision, no sense of or desire to achieve as they can expect to, and in many cases do, live on handouts and benefits. Its called the overspending, non productive nanny (welfare) state. Wallow in your own excessive spending and self-pity people. Until you elect a National Government minus the pc and eco terrorists that will encourage you to take responsibility for yourselves nothing will change.
Morgagee
Time to think smarter I think. If Bollard wants to push it higher then in order to get through this we need to tighten the belt and stop buying those things we really don't need. Not that I have been buying willy-nilly. However, I see the need for a change in government and a tax on foreign investment in the housing market. Something like $50k will help to bring it in line. And a tax reduction or adjustment on the tax brackets simply because our wages are not keeping up. Markets bounce along with supply and demand so we need to either up the supply or force the demand down. Bollard's increase is only one way we can push demand down, if a tax on foreign investment was introduced it might work sufficiently to push the housing demand down further but not at the detriment of ordinary kiwi buyers. But I agree it is getting very expensive to stay alive. Not much spare change (if any) out of my salary.
Christ (Auckland)
I don't know too much about the economic and how the inflation works..all I know as an Aucklander is, it is very hard to live in New Zealand now. Another raise on interests rate is only stopping those people who are wanting to buy their first home but nor those people who have lots of money to invest on property. We are working so hard to survive; but look at those rich people from oversea, they put their money in our bank and earn high interest- what have they contributed to New Zealand? Nothing,. It is very strange that the government is not looking its residences but the investors from other countries. I am very disappointed and planning to move out of this country.
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