KEY POINTS:
Here is an earlier selection of Your Views:
Robbie (Ackland)
I am happy to hear that the OCR was raised which puts pressure on individuals who owns more than one properties on mortgages. Because of these types of selfish people the younger generation finds it difficult to start off their lives. On the other hand I hope the OCR is not going to be raised to a level where the NZ dollar will be a real burden for exporters which might result is job losses.
Lawrence Griffiths
According to the reserve bank governor, and his obsession with inflation the really bad news is:1. Full Employment. (those dreadful workers will want more money) 2. The value of our houses going up. (lets clobber the only safe way to save for a decent retirement) 3. Those dreadful dairy farmers getting too much money. (perhaps we could ask them to burn the extra cash)4. The exchange rate is too high. (Well it is, but raising interest rates is sure to make it go higher).Far from being a pillar of our economy the reserve bank has stunted our growth for 20 years. How come China can grow at more than 10 per centpa and NZ gets a nosebleed if growth goes over 3 per cent. Imagine what our growth rate would be if our exchange rate was 47c (my estimate of what it is really worth) and interest rates were 6.5 per cent?
Raj Subramanian
I think, In four months flat, Bollard in association with Dr.Cullen, has proved his ability to shatter our economy.Dollar will stay at this high level or even raise again. Short-term foreign property investors will replace portfolios of our mum and dad property investors. Therefore property trade will boom further,this time by foreigners.Rentals will go up,as a result. There will be further shortage of fair rental properties. Govt. will try to invest all its money in property. Then the interest rate will come down, so will property prices, making Govt. to lose out millions of our tax-dollars and Kiwi Saver. Who cares about exporters and the basics of export income taking care of imports. We live isolated, Kiwi-style,away from the markets. Our only asset or income is land related, Govt. without knowingly encourages it by these interest hikes.
John (Wellington)
It means anyone could do Allan Bollards job. His actions are so predictable, I can't believe someone is paid so highly to perform such an automated function. If X plus Y always equals interest rate hikes, then we can program a machine to figure that out. If cuts in government spending are needed to change the result of X plus Y, then they might as well start by shutting down the RB. Bollards a slave to the foreign owned banks, he's more concerned about making decisions his banking mates would make, to save face, than the welfare of the economy. What a robot, what a joke! This country's for the scrap-heap ... bad robot!
JT
It means we will seriously have to look at selling our small investment property as we can't afford to keep it. I sure hope kiwisaver is a success because a lot of ordinary NZers can't afford to save any other way and try and secure their retirement.
Andy Milne
Bollard is killing New Zealand. Time to leave.
Amarjeet Singh
The government should cut the tax rates by 10% and increase the interest rates by 2.5 % in one go. So one can contribute in KiwiSaver as well as one can pay the interest on mortgage. At least some people can save.
Gillian
This runaway kiwi dollar seems like a ploy to get New Zealanders living overseas to return. Its makes sending money back to New Zealand, for example, paying off a student loan from overseas hugely expensive!
Steve
Dr Bollard has the unenviable task of trying to satisfy many areas of the economy at once.It appears to me that the current strategy of increasing the OCR by 25 basis points every 4-6 weeks is an attempt to try and please all sectors of the economy a slow strangulation tactic which is prolonging the inevitable ( a major correction). While some external influences cannot be controlled by our economy, more vigorous raising of the official cash rate say .5or .75 could promote a more speedy conclusion to house price inflation over a shorter period. The downside of course is pain to manufacturers,but this should be short lived as inflation becomes controlled in a shorter time frame allowing interest rates to drop.It is my view that quick decisive action is required by the reserve bank as the current strategy is prolonging the inevitable correction. The longer this is allowed to continue the more severe the correction.
Debt dumb kiwi
Poor Bollard.He's got Kiwis feeling the effects in their wallets whinging at him. My voice on his behalf is: 1/ he ain't the one spending $1.14 for every dollar earnt....just the one being blamed. kiwis in this generation understand only one thing, easy credit, no personal accountability and debt is cool!2/ He ain't the one inflating the countries money supply by double digit % every year which Austrian economics defines as the root of all inflation..i.e an increase in the money supply ends up as inflation at the shop and what we recognise as higher prices 3/ NZ's immense debt ratios make us amongst the worse in the world, never mind the OECD and the cost of that indebteness makes politicians and Bollards roll hopeless in that they are both apppointed in and out of office on the basis of giving the people what they want, not what is best. 4/Our lack of capital gains tax is at the heart of a misbalanced economy.Once again no politician has the balls to adress that given the high ratio of supposed wealth tied up in that powerful voting demographic and if our elected representatives wont deal with it, how can Bollard.In summary we just want to crucify someone!
Brett from Auckland, Happy renter
Time to show your mettle and stop being so tentative I reckon. Instead of dipping his toes in the pool to test the water, Bollard should have the courage of his own convictions and raise rates by at least 2 per cent.The small increases in the past have failed to achieve their primary goal - killing the overheated property market. A single "bombshell" of an increase will do just that. The dollar may rise on the back of that decision, but will fall in line with declining domestic property prices in the near future. The public need a firm message that will quench the prevailing thirst for consumer credit.A directive should further be issued to all lending institutions to tighten up on their lending criteria - a maximum loan repayment ratio equal to 30 per cent of gross earnings should be the qualifying criteria for loan approvals.In the interim I am quite happy to rent a property and place the proceeds of my house sale on fixed deposit while I sit back and watch the show!
Andrew
After condiderable public debate around the aforementioned tools to curb the 'rampant' dollar, surely the most suitable tool discussed would be to institute a percentage levy on interest rate that lenders receive. In the case of setting such a levy, say 1 per cent, the Reserve Bank would offset the OCR by the same amount, thus avoiding an increase in borrowers' rates. The funds the government would receive would then be funnelled offshore, to avoid any inflationary impact on the economy.The Reserve Bank would monitor this measure, and reduce the levy when the funds available to borrowers drops below an 'unhealthy' level.The impact of such as policy would be two fold: not only would the lenders returns be reduced, but the supply of New Zealand dollars onto the market would increase, subsequently dropping the dollar.Don't let the connotation of additional taxes put us off this tool.
Go Kiwi
Raise them rates. Exporters had a boom time of it four years ago. Importers are creaming it now. Pass on the costs savings.The kiwi isn't overvalued, it's simply market forces dictating that the US Dollar is seriously losing it's status as the benchmark against which all other currencies are set, and probably will be so for the forseeable future.Those who deem that the dollar is overvalued, too high, painful, drop the rates, need to realise that what the kiwi does hardly affects world rates - the US does however - and around the world, all currencies are strengthening against the greenback.Do you hear the UK, Aussie and Euro exporters complaining? No, because theyre diversifying and marking their points of differences. NZ'ers need to do the same and market what makes our exports different rather than crying foul and passing the blame which we all want to do when we cant handle the jandal.
Daniel Parun
Dr Bollard must surely hold rates (or even reduce them) tomorrow, another rate hike would be foolhardy. The constant misplaced fears of inflation by economists and the like are so far off the beaten track, there is no serious inflation anymore since we adopted a market economy model. Property prices will always be sorted out by the market even in a lower interest rate environment, it is already happening out there as there are clear indications we are at the top of the cycle. Another hike will head us into dangerous territory.I believe Dr Bollard will not hike rates tomorrow, just bet against the majority of economists as history has proven in the past that they are poor predictors of economic forecasting.
Andy (Auckland)
Bollard will raise rates tomorrow and likely have to raise them again simply cos he was too slow to raise them in the first place.The NZD is high, why? 3 factors: Interest Rates, Commodity Prices, and US Dollar weakness.Herald Columnists can write all they like about its all Bollard's fault, but riddle me this:NZD/AUD lower than 2 years ago...yet we have hiked 125bps and RBA have hiked 75bps.And please engage brains before suggesting he should cut to get the NZD lower.... what do we think that will do to imported inflation (particularly fuel)? Simply, he has to get domestic inflation under control (currently ~4 per cent) before the currency falls and brings with it imported inflation.I say, hike 50bps... stop sodding about and admit you have been acting too slowly.
KiwiJohn
The politicians, cynics and smart people who are sitting around telling exporters its their own fault or worse still suggesting we can somehow fix the problem by getting our act together are missing the point. Let's take the case of an exporter who trades with Japan in JPY. In August 2000 NZD/JPY was sitting at 42; In August 2005 NZD/JPY was at around 72; At least one US source is predicting NZD/JPY will soon go to 102. If you'll bear with me for a moment. Simplistic perhaps, but not that far off the mark: That's the equivalent of a 140+ per cent reduction in revenue in just seven years! q.e.d. if you had not rThe politicians, cynics and smart people who are sitting around telling exporters its their own fault or worse still suggesting we can somehow fix the problem by getting our act together are missing the point. Let's take the case of an exporter who trades with Japan in JPY. In August 2000 NZD/JPY was sitting at 42; In August 2005 NZD/JPY was at around 72; At least one US source is predicting NZD/JPY will soon go to 102. If you'll bear with me for a moment. Simplistic perhaps, but not that far off the mark: That's the equivalent of a 140+ per cent reduction in revenue in just seven years! q.e.d. if you had not reacted. Even if you had spent five years squeezing your costs and hiked your prices to handle the exchange rate and started off at say 20 per cent NBT in 2005 (better than average SME performance) that's the equivalent of a 40+ per cent reduction in revenue over the last two years. Not quite as bad, you might say. Well, perhaps. But you would need to have grown your business at around 10 per cent p.a. to break even. And of course, you could have raised your prices to avoid substitution by others selling goods at somewhere between 1 per cent and 40 per cent cheaper than yours. Get real. DROP the OCR by 3 per cent - tomorrow!
Nat
Inflationary pressures certainly justify an increase. Opposition to rate increases seems to come from excessively leveraged mortgagees and owners of marginally profitably businesses (that we may actually be better off without). After a prolonged and bitter battle with our employer we recently received a modest pay increase. I would be incensed if this was flushed down the inflationary toilet for the sake of a few imprudent property investors.
Not an Economist
Increase the deposito on all credit transactions - from housing to LCD TV's. People will have to save at least the deposit. This will force down house prices as well as cars and white ware. Interest rates should be dropped to get rid of surplus foreign investment. Which will result in a drop in the value of the NZ$.
Graham Astley
The Prime Minister and Dr. Cullen are effectively in denial. She says we have a strong currency because we have a strong economy and he blames the NZ dollar strength on the US dollar weakness. Both comments are half truths because neither acknowledges the damage that high interest rates are doing.
The answer has already been provided but Dr.Cullen will probably ignore it because he didn't think of it first. Steve Hanke a professor at Baltimore's John Hopkins University and a fellow of the Cato Institute, says we should peg the value of our dollar to a basket of other currencies as many other countries do. That would inevitably mean a much lower valued NZ dollar than we have now and Dr. Bollard would be free to do what he likes because irrespective of the interest rate level, the currency would remain pegged and steady.
Alex Duthie
It's interesting that everyone says the NZ dollar is extraordinarily high. As far as I can make out from independent analysis the NZD may not be over valued at all, and if it is, the most it could be is by about 5 per cent. Commodity prices are booming, the US dollar by which we often measure ourselves is dropping, our dollar is rising in line with many other western countries and apart from the humps and hollows of daily trading could be said to be doing exactly what it should.Funny isn't it that at a time when we have had the best extended period of economic performance for decades we have become obsessed with the dollar value.Even Fran O'Sullivan is getting on the band wagon. What for I wonder? I suspect our dollar would be rising whether or not the Governor raised rates. It would be a pity if he does not pay attention to the internal economy and reign in inflation just because mob hysteria says the dollar is too high. On the question of other policy, well there is a commission looking at exactly that right now.
Don Kerr
Fran Wilde's letter is an oxymoron. She implies Bollard will only make an independent decision by not hiking rates. Maybe the reason why economists are calling higher rates is because that's what is needed and an independant informed decision would be to hike. I would expect the research capabilities of the RBNZ would be greater than that of Fran's opinions as opposed to fact. If you are going to criticise someone ahead of an event please be a little more objective.
Michael Bruce
The price of money is interest, borrow too much and you have to accept the consequences like any other kind of market. The over reliance on housing for investment is the problem. A level playing field is happening at last with taxes and managed funds etc. Consequences...its sickening to hear leaders trying to avoid them.
Bren
Bollard, go tag Helen and her bench monkey Cullens home with the words "Stop overspending" - $45 billion a few years ago increasing to excess of $75 billion, this muppet govt has no control, for goodness sake never listen to that idiot Cullen, the guys like his profession... History
BJ
I agree with Les Barnes comment. But with a tweak, immigration is becoming a serious issue. I am not racially prejudiced, I just feel that too many foreigners come to NZ. They come here and try to change our culture. Some try to get such holidays as Easter banned from primary schools. If immigration was regulated housing and money issues would level off a little.
George (Auckland)
Let's hope for an interest rate hike. Those who are calling for a cut are those who either wanted to "play" the housing market at a wrong time without regard for their consequences or are exporters and want to keep on milking their own inefficiencies and reluctance to increase productivity.
The government has given huge handouts in the form of welfare (e.g., Working for Families) or by increasing the bureaucracy of the public sector. What was the government thinking that people would do with their increased payout other than consume and fuel inflation?Those who are fostering and justifying a high inflationary environment must be out of their minds.
Blossom (Canterbury)
Three simple things are concurrently needed to fix NZ's interest rate, exchange rate, housing market escalation and exporter's problems:
1. Drop the OCR by 3 per cent p.a. by exercising Cullen's threat under the provisions of the Reserve Bank Act
2. Change Sections CB5 to CB21 of the Income Tax Act to exempt only one's own home or one's own business premises from Tax on capital gains (and threaten to tax all investors in property on their capital gains on an annual basis)- the provisions are there just apply them - though NZ does not have a specific Capital Gains Tax (CGT) - we do have tax on capital gains - with no allowance for inflation;
3. Make all interest non-deductible on investment property (residential included) but allowed as an accumulated cost against any capital gains when the property is sold. Do not allow deduction of depreciation as an expense on investment property, thus denying subsidy by taxpayers and offsetting that no tax claw-back on disposal at sale. Home and business premises should also be allowed to deduct interest costs against personal income (only) and against business trading income.
So simply - why hasn't anyone thought about it!
I am a registered valuer (for over 40 years) and a Lecturer in Land Ecomonics for over 45 years.
Ian Morine
I always find it vaguely amusing how some contributors, including some "economists", that think they somehow know more than Dr Cullen about NZ's economy, money supply, Reserve Bank Act (no one knew about section 12 until Dr Cullen mentioned it yesterday!) and other aspects of the economy and how it runs. After all Dr Cullen has been around a lot longer than most Finance Ministers before him and has managed the NZ economy at a time when we have seen much stronger growth than at any other time since the golden age of the 1950s!
We "could" have seen 8-10 per cent economic growth since 2000, if it wasn't for the most "right-wing" of economic legislation, Roger Douglas's Reserve Bank Act introduced in 1985, that has suppressed economic growth and production by increasing interest rates that both households and businesses have to pay, and we all know the effect on the value of the NZD.
Then there was the worst folly of all, the National Government dismantling "apprentiship" schemes in the early 90s, to save money - what is it about right-wing governments, they seem to be so short-sighted, anti-growth, spend no money on infrastructure, give tax-cuts that benefit no one beyond the short term and don't know the meaning of "long-range planning" - beyond a couple of years! The "next" first step is to get away from the narrow focus on inflation, targeted in the RB Act and rebalance the economy - to hell with Bill English's "currency speculator" mates.
Dorian
Countries do not become strong and successful by having weak currencies. Weak currencies only imprison the populace. Weak currencies only empower the politico-aristocracy, because the ordinary person doesn't have the wealth to escape the poverty the nation's weak currency enforces upon them. This is further enforced by the inane argument used by experts when the nation's balance of payments (or the related balance of trade) is negative, stating in their expert opinion that only a weaker currency can counter this imbalance; by helping exporters to make their products cheaper and so sell more, and making imports more expensive and so people will import less. This theory should by now be obvious that it doesn't work. It has never worked in New Zealand or in Australia! Note, as your exports are valued less, how does that create wealth for the nation and not just for a few? It doesn't. Countries like New Zealand and Australia can't manufacturer all their needs, they'll always have to import goods, a weak currency will make these things expensive and so impoverish the nation, no matter how much the nation exports, for those exports are valueless to the nation. So, go Kiwi dollar, go!
Richard Frater
Watch for the 20 per cent devaluation that could come out of the blue on NZD. No commentary on this likelihood at all by the experts!
Colin
It seems to me actions speak louder than words. So long as the Working For Families package is to be used to buy the latest plasma or an overseas holiday then Mr Bollard will put up interest rates. Three hikes already this year and nobody (apart from exporters and non-dairy farmers) gives a toss. Will the OCR need to be 10 per cent before we all wake up to the fact that this consumption binge can't continue? So what to do? Cullen should grow some gonads. We should be taxing non-productive sectors of the economy, property investment with CGT, consumption on luxury items with a higher rate of GST, and carbon taxes on pollution. Scrap rubbish socialist policies like "Working For Families" and nonsense "In Work Payments". Taxes can then be slashed on the productive sectors of the economy, ie income taxes. This will encourage greater productivity, make us globally more competitive, and actually reduce inflation. Unfortunately though we have a history professor as the Minister of Finance - one who would rather study and follow history than create it.
Trodat07
No! Michael Cullen is an academic and a long serving politician with little credibility to suggest that he should interfere in a matter which is fundamentally outside the scope or ability of a small country such as New Zealand to influence the real financial powers of the world at large. The obvious analogy to me would be the suggestion that Dr Cullen could have anything to offer on the War in Iraq. At the moment he is too busy building up the Labour Party's war chest/hand outs for the 2008 Election - and he does not realise that it will not achieve his objective.
Albert
To start with, Cullen isn't even fit for the job. He's an historian not a finance man, so he don't know what he's talking about. He's simply throwing whatever he can at the fire and hope one of things he throw will dose the fire.
The famous BNZ economist says interest rate must go up. Of course wants it to go as high as possible. So that house prices will come down to fulfil his prediction. I'm sure you all remember that he's been predicting a fall in housing prices for more than 3 years. Not sure if he sold his house back then and now kicking his own butt? Any one out there can tell me?
El Sid (Auckland)
In simple terms, increasing interest rates results in increased overseas investment thus increasing the NZ dollar-who is winning? Why do you think the banks are so keen to lend you money and eager to see bumbling Bollard restricted to only using interest rates to try and curb inflation? The banks use overseas funds, borrowed ex Japan at 1.5 per cent and loan it out willy nilly to eager kiwis at what ever miracle rate the Reserve Banks puppet sets. They're making a mint for their overseas owners! Even the Reserve Bank is in on the act, cause we sure don't own that one either! Our govt is either too dumb to intervene or simply too scared to take effective action.
Les Barnes
Stop immigration. The dollar and housing market will both drop. Simple.
Tim
I believe Michael Cullen is using a technique called moral suasion - he is trying to talk down the exchange rate & I have faith he is not stupid enough to interfere. Alan Bollard has been trying this same technique for quite some time to little effect, but I also believe Cullen has no business whatsoever in interfering with the RBNZ's role - even by talking. Labour has overstepped their line of governance in NZ need to stand back and stop getting involved in every micro-item that involves the country. TVNZ, RBNZ, Mercury Power etc. all need their independence from the government to remain just that, independent. We have elected boards and councils which should be left to do their job free from governmental interference before we set out further along the slippery slope towards communism which Labour has subtlety started to lead us down.
Andrew (London)
Using interest rates to steer the economy will always be a double edge sword, especially in NZ. Moving away from using the OCR to counter inflation is like becoming religious on your deathbed. Everyone was quite happy borrowing heaps to buy over-valued holiday homes and investment property's when rates were low, but when they get to the edge of the cliff we all want a get out of jail free card. Bring on 15 per cent so my savings don't depreciate further!
Expat kiwi living in the UK (not for too much longer)
Mr English was reported to urge Dr Cullen to step in and control the Reserve Bank, and when he does, he is told to leave them to their own decisions. It seems the Nats want it both ways, but don't want to draw the line. Unfortunately Tory supporters have selective amnesia about how bad they were, when last in power. May it be a long time before they are again!
Concerned New Zealander
If the Reserve Bank, whose job it is to keep inflation within reasonable limits, and also keep our currency at a limit that benefits all our industries but obviously can't manage that, then the government should implement fiscal policies now that will tighten up the tearaway dollar. We do not want the powers that be to push all New Zealanders into a severe economic backward slide. So, come on the government, bite the bullet override Mr Bollard and his constant interest hikes which are doing the same thing every time, i.e. pushing the dollar up and up, and do what has to be done immediately. Instant results are desperately required otherwise it is obvious where it will all end - crash!
Mohan Sivaswamy
RBNZ's predicted rate rise is based on its desire to keep inflation under control and reduce the demand boom in the housing sector. But the high dollar is acting as an inflation-dampener. I think RBNZ should let the currency markets play it out and find out the best level for the dollar, instead of boosting it further with a rate rise. Let the speculators move onto some other currency. Any increase in interest rate will only increase inflation in the short term, besides affecting first-home buyers.
Sometimes it is better not to intervene just for intervention's sake. Cullen may be right in thinking that RBNZ should cool off for now. They don't have lots in reserve to play in the forex market to influence the dollar's rate. They sold some dollars a while ago but it was easily absorbed by speculators who may have more money to play with. Let us realise that we are having a good if not a booming economy and that is what is attracting the interest in our dollars and real-estate market. We are an island of peace among troubled waters. Let us make the most of it by getting as much foreign investment as possible. If it means a little more inflation, that is okay.
Jock (Devonport)
Should the Government invoke extraordinary powers to prevent another interest rate hike? My short answer has to be 'no' - mainly because we cannot know what would be entailed so that our individual criteria for evaluation can be brought to bear upon this crisis. However, if Fran O'Sullivan's suggestion that "the parties should unite on the dollar" were to be acted upon, then my answer would be 'yes' because high interest rates does not dampen demand by cash-rich foreigners. Also, the classical valve for controlling the expansion and contraction of money in a closed economy is actually counterproductive in a volatile open economy in an environment whereby speculative trading accounts for 95 per cent of the US$1 trillion (+) global daily turnover. I do not believe that expenditure and inflation are related. I believe that inflation is a sign that there's too much manufactured money [i.e., debt] and imported money is chasing too few goods and services. Moneylenders and speculators with excessive disposable incomes are the beneficiaries of high interest rates. Guess who are the losers?
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