KEY POINTS:
Here is an earlier selection of Your Views:
US Ex-patriot DG (Auckland)
The Reserve Bank's attempts to manipulate the FX market will only result in NZ getting hurt. The bank has about $5 billion (NZD) to "play" with. The size of the daily FX market is $1.9 trillion (USD). The bank's influence, even if it blows the entire wad on one purchase, amounts to less than 2 tenths of 1 per cent of the daily transaction value. It will have the same effect as throwing a shoe at an oncoming car. The driver may flinch, but the car can still run you over.
Secondly, I like a strong currency. As an import nation, everything we need from overseas just keeps getting cheap the higher our dollar goes.
John (Auckland)
Why is this action of the Reserve Bank repeatedly called an "intervention" when it could just as easily be interpreted as "bargain buying". The NZ dollar is at unrealistic heights. What better time to buy other harder cuurrencies that are more fairly valued? And who would have better knowledge of future actions affecting the NZ dollar than the Reserve Bank? They're engaging in a currency play as informed insiders. The rest of us would be arrested for such blatant abuse of privileged knowledge.
Ellerslie Economist
Dr Bollard can intervene to lower the dollar - by lowering interest rates. Once investors can get better returns elsewhere they will sell the kiwi dollar and the exchange rate will drop. Banks will have less money to lend, so mortgages will be harder to get and house prices will drop. Of course all imports (such as petrol) will go up in price, so inflation will jump.
NE, Henderson
The most amazing thing in this discussion, as with so many discussions, is the number of people who talk without bothering to know what on earth they're talking about. Like people say Cullen was directly responsible for the decision of the Reserve Bank. Of course, anyone with half a brain knows that the Reserve Bank has operational independence in such matters and didn't consult Cullen and it appears didn't even inform him beforehand (which isn't that surprising). Sadly, these same people choose to vote with the same lack of knowledge.
steve
Some of these people really don't understand the reason for the intervention in the currency market. The reason is the RB's responsibility to protect against abnormal volatility in the currency market. Their tool for doing this is trading. These moves were made when trading was light, and a few buyers can increase the price significantly. Our currency is not as liquid as other currencies and hence the intervention. The move has nothing to do with the RB's other responsibility to keep inflation down. The tool for this is the OCR. yes it has effects on currency, but these two things must be viewed as they are, completely separate from each other.
Ian Morine
Get rid of the Reserve Bank Act now, and consequently our obsession with inflation, which is warping the economy and NZ dollar value. Any undue emphasis on one thing, will naturally and eventually warp the economic environment.
The Reserve Bank Act worked fine when the economy was stagnant in the 80's and 90's under right-wing governments, but has failed us miserably since 2000 when the economy and growth accelerated. Growth could have been so much higher since 2000, if the "Act" hadn't suppressed growth by rising interest rates, consequently strangling growth. The Reserve Bank Act was a Roger Douglas right-wing solution to a problem around 1985, which has not existed since, get rid of it before we are in real trouble again and paying 19 - 20% mortgage interest rates again!
Joseph Mascarenhas
It may work in the short run. I think its a stupid idea as the dollar should take its course.
If exporters are suffering, why is the Stock market more than double what it was when the dollar was at 0.4 to a U.S. dollar? Due to Bush's 1 trillion dollar deficit, currencies, stock markets and house prices around the world have appreciated. If the RBI wants to help exporters, they should give them tax breaks instead of showing 10-12 billion dollar surpluses.What shocks me is the price of meat, when NZ is supposed to have such a huge cattle population! People in NZ are being ripped off so that foreigners abroad can pay peanuts for the meat we produce here.
Auckland
It seems common sense that a capital gains tax should be payable on investment property. Investors in the residential market are treating their rental properties as a business. Professionals in the property market have to pay capital gains tax on their properties, so why shouldn't these amateurs?
Rob, Auckland
The capital gains tax is the smartest idea the RB's had in 18 months of interest rate rises. Right now, the tax structure actually encourages investors. There is no tax on the gains and you can write any losses or expenses off against personal or company income. So what's happening at the moment, particularly in areas where first-home buyers would be attempting to buy, is that investors are happy to make a little to no return because their capital gains are so strong. As long as they can handle the gap between rent and mortgage, then they're fine. Then, as the property's value rises, they turn around and buy another one using the equity.
Jane
I totally support 'capital gains tax'. Too many people have got rich wheeling and dealing in Real Estate, greed combined with immigration has fueled the housing market. The wheelers and dealers should give back rather than lining their own pockets, with only thoughts of themselves. I mean people who make a living out of prices hiking, not the traditional family home owner.
Paul
I believe that interest hikes alone will not sufficiently cool the housing market whilst potentially having a catastrophic effect on our exporters.I cannot understand the resistance to introducing capital gains tax on speculators with more than 2 properties.
andrew
It seems obvious to me the Labour and National parties' objection to the residence capital tax gain due to their own benefits. Both have not explained the reason why they are not supporting and also no solution has been given to fix the problem of rising property price. It's telling that most of the parties' members and the rich hold a number of properties. With the introduction of tax gain the house price will become affordable to many. We would be able to cut down the number of foreigners buying over large number of properties in NZ and local speculation on the property investment. We want affordable house so we can live, not for investment. If it's an investment it should be taxed.If both parties hold strongly on "No capital tax gain" my vote is going to neither one of the parties.
Le Fox
If you have more than one property (the place where you predominately reside)all other properties should be classes as an investment, hence any property sold which is not your own home should be classed as an investment & therefore should pay a capital gains tax if sold at a gain.Many people are selling multiple properties within the year & not paying any gains tax. Income derived in such a way is an income which should be taxed. If you do ironing for people that is classed as income,or people getting gratuities (tips) then the taxman wants their cut, so why should property moguls be tax exempt?I also do not understand why my taxes should help someone get into their first house, especially, as the housing market is targeted as being the enemy of the reserve bank. Go figure.
Coli
Capital gains tax is not the way to do it, the only answer is to stop non-residents from being able to purchase land or property in New Zealand. Only permanent residents should be allowed to buy properties within New Zealand. Many other countries adopt this policy so why should we be different and be a soft touch for the rest of the world.
Andrew Dancer
The Policy of increasing interest rates to control the housing market and encourage savings is fundamentally flawed. Wages are too low and home owners struggle to meet their ever increasing mortgage payments. There is no encouragement or ability to save for such people. Furthermore, exports are now becoming uncompetitive and alternatives to home produced products are becoming far more attractive, both domestically and internationally. The balance of trade will be the next symptom of the short-sighted policies of the Central Bank. Dr Bollard's intervention is guaranteed to fail. The interest rates are too high. To outside investors the ability to invest in very low risk Carry Trades is a no-brainer. Japan has a base rate of only 0.49 per cent. The process of intervention by the central bank is to sell NZ$ currency to buy foreign money, which will become worthless in a short space of time. You cannot stop the currency value increasing (and hence the money you have bought decreasing) without reducing the interest rate. This transient money has little benefit to New Zealand and eventually (just before the crash happens) will need to be paid back. New Zealand is providing international investors with the attractive ability to borrow cheap and receive high return. The only answer is to reduce interest rates by several per cent. The inflation that the bank is trying to avoid is being guaranteed to happen, as prices will rise dramatically as soon as this unsustainable activity ends. How many homeowners will need to be made homeless before the central Bank wakes up to the fact that New Zealanders are getting screwed by such reactionary and short-sighted policies?
Loones
I hope Bollard's attempts fail. I'm going on an overseas holiday in a couple of months and want the dollar as high as possible. Go Kiwi!
Chen from Epsom
My answer is "No, intervention will not work."Two ways to bring the dollar down are
1. Tax overseas residents on interest income.2. Lower the interest rate.
JMF
Its interesting what he is trying to do, but as long as the interest rate is high, there will remain a long list of foreign investors willing to keep buying the Kiwi. Bollard needs to find another tool. Perhaps he could just print more money then it wouldn't be as scarce. Unfortunately the USD will remain weak until Bush pulls out of the Middle East.
Northern Irelander in NZ
The last interest rate increase was a mistake. It was done in expectation that the US and UK would lift their interest rates the following day. When the US did not, New Zealand was in a pickle with relatively higher rates. Bollard has now panicked as the result of that error was an increasing exchange rate against the US dollar. He cannot be seen to reduce rates immediately otherwise there will be a huge run on the NZ dollar. Thus he can only play with buying foreign currency instead.
Michael (Westport Ct USA)
The NZ$ is an international currency, well tracked and traded on the markets and Mr Bollard and others need to understand that every action and word will have implications. A rate increase to 8 per cent, and expression of values being unrealistic in terms of fundamentals and intervention all within a week is both unusual and likely to prove ineffective. Viewed from Japan or the Yen the kiwi is affording a clear 7 per cent advantage before anyone gets hurt so drip drip rate increases, verbal expressions and intervention only add to opportunity and confidence. The problem must be attacked at source and some allowance made for inflation disparity in the short term especially since international commodity prices our outside the control of the RBNZ.
I hold NZ$ against other currencies and will continue to do so until I see something different, a further monetary tightening is an opportunity not a threat.
T Hob
The OCR is manipulated by altering the supply of money in the market - not a magical declaration that henceforth the Interest rates will be XX per cent. Tightening supply (ie the RBNZ makes less dollars available for Banks overnight settlements) drives the value of the ccy (expressed in yield per cent terms) loosening drives down the value of the ccy.A high OCR doesn't stimulate inflation - rampant consumer spending does that. A high OCR doesn't cause house inflation - excess demand over supply does that. A high ccy is not necessarily a bad thing - all the Western ccys are high vs the USD which is weak. A higher OCR does dampen down stimulation of the economy and spending - which by definition means that it reduces inflation. The cause of increasing interest rates is not offshore currency speculators nor is it Dr Bollard reading runes - the cause is much closer to home - its New Zealands propensity to spend not only every dollar they earn but an extra 15 cents on top as well. Stop spending and there would be no need to hike rates.
100 Level Economics
Mr Bollard and colleagues could well take a lesson from 100 level economics courses.
The dollar will remain strong despite Reserve Bank selling while overseas investors are getting up to 3 x the secure return they can get locally.Housing demand will continue despite OCR rate increases because housing demand exceeds supply. A key part of any solution is to increase the housing stock and we will head back to equilibrium. The govt is calling for skilled immigrants but is not providing / promoting / supporting local Gov't processes to allow for a matching increase in housing stock. There is no point in beating the country up with high interest rates. Let the market work out what is too high for a house price - so what if a few property investors get burned - that is the best signal other investors will respond to and slow down.
Disappointed (Auckland)
I was speaking to a friend of mine who is currently living in London, he has a finance degree and put forward a great idea that I am amazed our Government hasn't thought of, That is bringing in a capital gains tax for any purchase of an investment property. Also to change the zoning of the surrounding areas to the main cities, thus freeing up land, so that we would be able to provide for affordable housing for first time buyers.
jim
Until the government evens the playing field in terms of taxation, the housing market will continue to rise prompting further rate rises and a rising kiwi. Where else are New Zealanders at present supposed to put their savings? Into overseas shares which are taxed heavily, local investment funds with high management fees and various other pitfalls or into property which still enjoys tax haven status. The horribly planned and crippling tax legislation that was passed into law on 1 April 2007 is one of the culprits for a continuing surge in property investment and as a result we find ourselves with a rising kiwi.
Cawas Pardiwalla
I think the government should devalue the New Zealand Dollar to the level which it thinks would be appropriate for the economy and the exporters - once and for all.
Howee
But it is up to the the financial markets to decide. The markets were an all an extremely fair benevolent force we were told.
Auckland
Instead of selling NZ dollars why not just devalue the dollar to 65 cents and fix it at that for 6 months... Or would that be too bold?
Roger Cribb
The best way to lower both the NZ Dollars and interest rates would be for Mr Bollard to reduce in interest rates to 1 per cent, That way no overseas lenders would bother sending funds into NZ so there would be no money available to borrowers which would force housing prices down.
JT
People need to understand Bollard is effectively powerless. There are huge amounts of global capital trying to find a home at any given time. As globalisation increases markets such as NZs property market becomes easy to invest in and fair game. A prime example is the huge amount of money that Australia has invested in NZ property, add on other global funds chasing the high yields on the NZ dollar an we have nowhere to hide. The rich get richer and the poor get poorer - it's simple economics. Unfortunately this won't end until NZs economy is brought to a halt via excessively high interest rates and enters a recession - there is no other alternative.
Sander Zuiderduin
The problem of the booming housing market and the price rises lie with the fact that there is no tax on second and more homes owned by property investors. They are the real reason for driving up the prices. In fact, they can even claim tax back for any loss on their rental properties while paying off their own mortgage (if they still have one). The government will have to act soon or else nobody will be able to afford their first homes. Let alone the problems people will face when their fixed mortgages come up for renewal.All the reserve bank is doing is setting up massive sale of properties when people can no longer afford the mortgage repayments. Is this what really they want? I guess it's one way to bring prices down, but it comes at the cost of the wrong people, the regular 'Joe's' and not the property investors who are ultimately responsible .
Cecil (Howick)
Mr Bollard could have spend that NZ$1 Billion plus Dollars much better !1.NZ$ 1. 000 000 000. = Help Exporters ? 1000 Businesses Given NZ$1 Million Dollars each,
2.Or 10 Businesses getting NZ$ 100 Million Dollars each. What an help to our local economy,than help protecting the U.S.A Dollar. 3.We need to look after our own region.Asia is investing in the NZ Dollar,funny that the foreign markets has more confidence in our market.When moving away from the Gold Standerd the U.S.A name themselves the new currency Kings. A currency, Dollar that they cannot underwrite.] When their Dollar collapses ,they will take us down.Please Mr Bollard do not throw another NZ$8 Billion away to gain 8 cents. Our Exporters can do rebate deal ,with their Clients.We are also a country of importers. Remember we need to import petrol, and we pay in dollars. Drop the petrol price and it would be a Dollar well spend.
Tastewise (Auckland)
Well well the little Reserve Bank of New Zealand thinks it has access to enough of our 'loosable' cash to play international currency games. Presumably they they believe they know the value of the Kiwi dollar better than the current global market consensus. Lets see if the big currency speculators of the world decide to join the game this time. These speculators may strategically wait until the Reserve Bank have initial success, and this initial success fuels greater future boldness. With this will come increased risk for New Zeaaland, and opportunity for major global currency speculators down the track. The country may well rue the day it decided to attract the interest of such ruthless and deep pocketed players.
Grant
My tongue-in-cheek post on Friday (attached) may have been a bit closer to the mark than I expected ! "Bollard is a genius. It is obvious that he is driving up the exchange rate so Cullen can use the surpluses he has stashed away (somewhere) to pay off the entire national debt in one fell swoop. Then the exchange rate can be allowed to drop 40 per cent to its realistic level; and NZ has made a killing!"
Belly (Greenlane)
Michael Cullen,
Well done, you have just ruined the investor confidence that has taken such a long time to develop in our markets. I voted Labour at the last election but you will not be getting my vote this time round. You are clearly short sighted and lacking the financial acumen necessary for the position you currently hold. I wonder if Helen Clark OK'd this? A high dollar is reflective of our educated & skilled economy. Artificially keeping our currency weak does not to help retain the country's skilled young people and does not promote continued steps toward efficiency in our primary sectors. Fonterra have announced record payouts to farmers so what exactly justifies the currency intervention? The RBNZ continues to state that the value of the dollar is too high and it bases it's opinion on 'medium term fundamentals'. The RBNZ would seem to be implying that market forces are not working? Wake up, step back and let someone with a clue step up and do your job properly. Ideas not intervention! We are a market economy not a socialist state. It understood that the Reserve Bank was supposed to be independent when did this change?
Peter Kelly (Glendene)
Will the Government now admit that the Official Cash Rate (OCR) as a single control mechanism does not work (see Thought of the Day 29 Oct 2005)? The OCR has, since its inception in March 1995, risen from 4.5 per cent to its current 8 per cent and the inflationary pressure still exists. It has never in its 12 year history returned to its original 4.5 per cent. Surely if it was a useful stand-alone mechanism it would have at times returned to, and possibly even gone below, its 4.5 per cent original benchmark.One does not have to be an economist to know that the NZ economy is in trouble even the Reserve Bank seems to have finally twigged to that. Unfortunately the mechanism that has now been utilised (buying overseas currency) is a knee jerk reaction to the problems caused by the Reserve Bank itself raising the OCR beyond some critical indeterminable value.For an extended period the rise in house prices has driven the OCR rises. The fact that NZers have invested in residential property to the extent that house price rises far out strip any other investment is due to the fact that investment in this market comes with a significant tax advantage over other forms of investment. The only way to balance NZers' investment portfolios is to remove that tax advantage.
Can I suggest that simply applying capital gains tax on investment properties (ie those that attract tax right-offs) would be a significant step in rectifying this problem? Because this step is so fundamental to remedying the crisis that has been looming for several years I can only assume that it has not been introduced as many politicians use this advantage, themselves having rental properties, and also it would have significant political consequences at the next election for any party that suggested it.Back in 2005 such a tax could have been introduced progressively so as not to impose undue strain on individuals as the investment market was put onto a more equitable footing I am not sure we have the luxury of time anymore, but what is clear is that at sometime crisis management will be required or the economy will collapse what will the Reserve Bank do next if the current action fails? Combined with the investment tax inequalities is the fact that for many years we have fuelled our economy on debt. Financial institutions, from banks to loan shops to car yards to appliance retailers, have been falling over themselves to lend anyone and everyone money. NZ continues to accrue debt similar to the time of 'think big', only this time it is not shown on the Government Ledger as we are doing it as private individuals. This time it is not to fund productive enterprises that can be sold off in 'hard' times. How will we fund our debt repayment this time? The 'family silver' has long gone and investment in a productive export sector has stopped industry being forced off-shore due to our high dollar. Against this back drop the Reserve Bank has continued to fuel the high NZ dollar with ever more OCR rises and we have a Government that is so ideologically driven (with its hands-off free market beliefs) that it has allowed this situation to continue unchecked.The saddest thing I see in all of this is that the politicians who have alluded to our undue love for rental property investment and accrual of debt have been punished at the polls. This indicates that the electorate in general has no interest or understanding in the fact that at sometime the accrued debt will have to be repaid if we are ever to progress beyond working to pay interest to foreign money lenders.
Bond vigilante
From allyou're your Views, it appears Allan Bollard is doing a good job. If a central bank governor is popular, we know he is not doing a good job, it comes with the territory. Great news to those who save. We should restrict capital controls, so money borrowed comes from only New Zealand savers. The 'natural interest rate' should be in double digits.
NZer in San Diego
I'm not entirely sure why the government have not yet slapped a tax on those who sell up their house before 5 years. This is an intervention used in California to stop house prices going through the roof, and it seems to be working to an extent. The tax should be a percentage of the value of the property, and hopefully this will help to deter overseas investors from buying up all our housing and driving up the prices.
Ashamed
We know that kiwis are very tolerant, but to what extent. We have been taken for granted by this Govt and its appointed puppets like Alan Bollard, who gets a fat salary of $10,000 per week for creating misery for the common people.
Since the last 1 year we have seen nothing but rates rise, water rates going up, council rates going up, petrol going up and this govt has already decided that come Jan 08 they will impose a 10c tax on petrol. Guys awake and speak out, if you can't speak than vote this Helen and her bandwagon out as early as possible. New Zealand needs change and smart people to run the country. Lastly, this interest rate will not help, as always it will be a slap on the face for Bollard. All his rate rises have been ignored by the market and he has been proved to be a useless governor.
cullenly
The government is under pressure from the many foreign owners that control the NZ economy, that control the factories, the banks, the most productive entities in NZ. A high NZD makes the profits generate in NZ by the foreign companies very low. That's probably the main reason we now manipulate the currency. A strong economy means a strong currency. Too bad it's owned by foreign interests.
Wanna Be A Home Buyer (Auckland)
Supply and Demand is what is driving this housing boom...same as the last boom and the one before that and the one before that.If the labour party was concerned about housing prices and affordibility why have they dropped the investor immigration requirements? This has only driven more nails into a first home ownership coffin that was already shut pretty tightly!
Max Taylor
The NZ dollar has been artificially high for too long now and I blame the Reserve Bank through increasing our interest rates. They have played into the hands of the carry trade who have made megabucks at our expense. Too much has been made out of our high house prices - why not do as most counties have already done and tax the capital gains (after allowing an inflation component). We will all be better off if we do this! Our exporters are suffering! Wakeup!!
Greg from Auckland
I don't believe for a moment that knee jerk reactions will improve the economy. I think that NZers have a very bad habit of overspending for a start. If this alone is improved over the longterm then I am sure that our economy will improve. That would require people to change the way they use money in day to day life. If you can't afford something, then don't buy it. Spend less than you earn. It is the small changes that will make the biggest effect long term. I realise that is hard with mortgages the way they are but if peoples perceptions aren't changed sooner rather than later then it will just get worse.
David
Who is running NZ the government or the reserve bank governor? It appears to me the govt should drag him aside and check if he is in the pocket of the national party?
Mama Mia (Auckland)
First, half greedy real estate agents already excessive fees, because since property prices have shot through the sky so have estate agents' fees. Secondly, decrease interest rates on mortgages. Thirdly, reduce rents for state housing, as this will help to drive down housing prices and rents in commercial properties. Last but not at least, perhaps developers who make excessive profits should also be taxed increasingly more. Especially housing prices in Auckland and Wellington have reached proportions where only the sky is the limit and in many cases exceeds hosing prices overseas, when considering salaries and wages in New Zealand, which are many times lower than most other Western countries. Thus, somebody must be making a packet in New Zealand, rather unfairly, whereas most are on the losing end.
Scruff (North Harbour)
The interest rate rise is to cool the housing market right? It seems to me a much simpler way would be to have a moratorium on immigration which would have other side such as causing the NZ $ to fall.It would have the added benefit of reducing pressure on infrastructure & services. There is a lot of talk of the benefits of immigration but what of the increased costs? e.g. regional petrol tax to fund the extra roads, hospital waiting lists,higher rates, increased pollution to name just a few.
Lal Perera
Reserve Bank strategy does not help to c