KEY POINTS:
Here is an earlier selection of Your Views:
Martin
Landlords will have to pass their increases in interest expense along in higher rents to people who can ill afford it. Landlords/Property Investors are often vilified, but they are providing housing for a very large number of people. Many, foolishly, are already discounting their future expected capital gains into rents that are really way too low in comparison to the house values. This is a system that is out of balance - something is going to change and many renters, and this government, may not like what that looks like.
Dave (Papakura)
The strong NZ economy has raised the NZD against the major currencies. It is only especially high against the USD because the USD is very weak.Inflation is OK if we ignore the items we cannot control - eg oil.Overall we are not in a bad way, but it is inconvenient for exporters who use the USD. With the cost savings I suppose exporters are making, the rewards will be excellent when the USD recovers and someone has depressed the NZ economy. Let us just hope it happens gradually and not before I can afford a large plasma TV!
Auckland
Bollard is an even bigger woolly than I realised. He needs to get out a bit and see how the rest of the world works. Here comes the recession.
Bill Colliar
It amasses me that the reserve bank can see strong growth in our economy when the rest of us at the coal face struggle to even come close to competing. Having been in the export sector dealing into USA we have not only seen a 25 per cent reduction due to foreign currency fluctuation, but also we are suffering from increased costs internally. If we cant at least peg ourselves to a major currency such as the greenback, we may as well turn off the lights now than suffer the increased stresses and pain that we are being put through.
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.
Manurewa
Why should foreign currency speculators be given the opportunity to benefit at the expense of struggling NZ home owners/buyers and NZ exporters?
Finlayson
This means all New Zealanders are getting absolutely done over by the rich foreigners buying property at cheap retes.The reserve bank should look at putting in place a foreign ownership tax so People of NZ dont have to pay more in interest.Wages are not keeping in touch with the rises in the cash rate causing great hardship for the hard working classes of NZ.
J. Morley
I find it hard to believe that rates have gone up again. I am a 30yo male, who's thinking of having a family soon, but this sort of thing that puts huge financial pressure on, means that I have to seriously look at getting rid of the house altogether, putting the family on hold... and if it comes to it, moving to Australia where wages are so much higher than here.Simply putting more and more money each month into my mortgage, and with the govt's 4 per cent of your income away for kiwi saver, makes it really close to not being worthwhile even staying in this country. These are serious questions that I have to ask myself when my mortgage comes off, in 5-6 months time.
Judith
The market should be allowed to correct itself from and via market pressures. Any interference from the RB or government only skews the laws of economics: Supply and Demand. Saying now that 4 hikes is enough - what is this based on since the laws of economics have been set aside in favor of "wishful thinking." The homeowner and exporter is reduced to reacting to the latest crisis. Leave the market alone!
Banking 101
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, (i.e., the "business cycle") the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered." - Thomas Jefferson. "When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes...Money has no motherland; financiers are without patriotism and without decency; their sole object is gain." - Napoleon; "Whomsoever controls the volume of money in any country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate."" - former President James Garfield
John Chch)
It is not Allan Bollard or the government that is to blame for the high interest rates afflicting New Zealand.The problem lies in an era inherited from the last two decades of the last millennium, when for 66 per cent of people, successive reforms resulted in a massive drop in post-tax real wages.New Zealander's may spend too much relative to their income, but that is precisely because in many areas are not paid sufficent wages for their labour. Borrowing has become the norm, rather than the exception. The solution, is not to place limits on borrowing, but to double the median wage. This is what Government policy needs to be focused on. Tax cuts are not the solution to this problem, because many of the people who have high consumer debt don't actually pay a high amount of tax. Giving back a small portion of a small amount is no solution at all.
Greg (Auckland)
So much for Kiwis buying houses if the interest rates are going to go up around 20 per cent again. With a new round of labour vote buying coming up next year dont expect the real efforts to stop the dollar rising. Labours working for the people, yeah right.
Fuming from Auckland
I am sick and tired of Bollard!!! Is he so unbelievably short sighted and removed from reality that he doesn't realise all he is doing by increasing the OCR again is hurting middle New Zealand homeowners? When the OCR is increased there is an obvious lag effect before people are impacted (when their fixed interest rates are up for renewal). Can Bollard fathom the level of increase mum and dad homeowners of this country are going to be hit with now! The Chinese must be laughing at us, they keep investing millions in our currency and Bollard keeps making it a more profitable exercise and Bollard can't work out why people keep spending, pull your head out of the sky that is your high paid, removed from reality position and wake up!!! People are spending because the importers are having a field day and can afford to drop costs, duh. I was in Australia recently and was watching one of the breakfast shows and the hosts were laughing at the idea of hiking interest rates because of exactly what I am saying above. The ZB market analyst on Holmes show (can't recall his name), he has been saying the same thing also but does Bollard listen - no. To be honest I am sick of politicians and the like thinking they know what's best for NZ. They are suppose to know but none of them seem willing nor able to demonstrate any ability. The only person who seems to be out to represent the nation is John K. Its all very well me having this rant but guaranteed the Bollards of this world will be sitting their smugly saying "and what would you do to stop it?" If I was Bollard , I would have dropped the interest rate considerably. We are being pushed around by the Chinese so why not push back and stand up for ourselves rather than bending over and asking for it deeper.All I can say is National for government, Clark and Bollard for the scrap heap!
ST
Raising the cash rate only increases the desire for overseas investors to invest in NZ. Let's focus on heavier taxation for overseas investors when they withdraw their funds and take them back offshore. Lets not get into the fray blaming specific Govts for the Reserve Bank raising the cash rate(although Labour is doing a great job!!). Those in Parliament (regardless of the party they belong to) need to work together to figure out how best to make changes to economic policy to stem inflation as obviously the current methods (regardless of when these methods were implemented) are not working. Is limiting inflation to less than 3 per cent realistic. I would rather see our Parliamentarians working together on a resolution than bickering with no result. In the meantime our mortgage payments increase but our wages are not covering those costs!
Reserve Bank is a Scam
All reserve banks throughout the world are privately owned, our own "Reserve Bank" being a prime example. This is private capital controlling our economy. Until our government takes back the right to issue and control our own currency, this cycle of inflation and deflation will continue to rob NZers of real wealth. How much did it cost to buy a house 10 years ago and how much is your $ worth in real terms today? Are you working less and enjoying life more? Did you see the cash when the bank granted you your mortgage? Ever heard of fractional reserve banking? Time to do some research and then take back control of our money system for the sake of our kids and grandchildren.
Pamela Walford
If what Mr Bollard quotes regards people over borrowing is really the problem, then why hasn't some restrictions been placed on the Lending Institutions. In my day, you were limited to what one could borrow. Mr Bollard has been trying to get the message out to people and they just wont listen to where this economy could go through their selfish greedy attitudes.Although I'm disappointed with the interest-rate rise, and reading more about the reasons... he has had no other choice. I am nearly 66yrs, husband gone, and have been left with a small mortgage to meet (on the Super)along with other expenses and seem to manage.
Sunil Dhall (NYC)
Dr Bollard has done the right thing and has to be firm in his resolve to break the house price inflation. While there will be pains in the short run, the economy will benefit in the long run. It is high time folks take advantage of the attractive interest rates and reduce their borrowings and increase their savings
Murray
What will this mean for me. It will mean a further improvement in my financial position, as my investments will in all proability attract a higher interest rate than I am paying for my mortgage. This means that when my fixed rate comes up for renewal in five years time, I should have enough saved to pay off the remaining balance rather than pay the higher variable rate. Thank you to all the big spenders (Dr Cullen included) who have enabled this to happen.
Rudy (Auckland)
Certainly a depressing time for home owners with mortgages and also exporters, but unfortunately, someone's got to pay for all that excessive spending and borrowing. We're just unlucky to be doubly squeezed in light of global inflationary pressures from oil prices. Hopefully, the situation should improve in coming months with the dollar falling off as we reach the peak of these interest rate hikes.
Paul
Light crude oil prices have roller-coastered $75/bbl in JLY06 to $55/bbl in JAN07 now at $75/bbl. The interest rate bumps have protected NZer's from staggering price increases to import this essential product (which affects the cost of just about everything). NZ consumers will have to hope that when the exchange rate starts to head south (for whatever reason), that the price of petroleum and other commodities are also taking a dive. It's a game of keeping your eye on all the components of our economy, not just housing prices. While mortgage prices are increasing, just think about how your life would be impacted if the pump price goes to $3/ltr.
Peter
"The higher OCR now gives strong incentives to New Zealanders to save," said Bollard today. That's rubbish so long as there is a tax on my savings, I have no incentive to save. However, I have the incentive to invest and with no taxes on my capital gains. And if I have to borrow to invest, it just doesn't have to be from NZ banks.
John
We can't win this game. Simply raising interest rates will see more money pour into NZ - increasing the dollar even further. And an increasing dollar means greater encouragement for consumers to buy cheaper imported goods - and absolutely no encouragement for exporters. There has to be a better way but the so called experts haven't a clue. This is not about the housing market any more - thats just an excuse used by the ignorant. It will all end in tears
Ian Morine
I wonder how Carl Forster (and others) figure that it is this government that floated the NZ$ in 1985, leading to todays interest rate / exchange rate spiral, as soon as NZ's economy experiences some "real" growth since 2000, for the first time since the 1950's. I would like to remind him and others, that the "floating" was done in 1985 by the most "right-wing" of Finance Minsters, Roger Douglas, who then installed the Reserve Bank Act and it's inflation target - which is the real culprit here. Douglas then went on to form the Act Party ! Get real folks. Don Brash (speaking also for John Key and his money speculator mates) appeared on the Agenda programme last Saturday morning on TV1 saying that interest rates should go as high as necessary to contain inflation, coming from the one who presided over 19 / 20 per cent interest rates which are more likely to benefit his own money speculator friends of course - who are not paying mortages - I bet ! National has not changed since Don Brash's leadership - the same horse, just wearing different colours ! Don't be fooled.
Big Mike (Westport USA)
Well no surprise and its all-good news according to Dr Bollard. Joe Consumer will pay a bit more to borrow but the appreciating NZ$ will mean that he can buy imported goods at lower prices. Lets hope Dr Bollard doesn't figure this out and realize it will not make any differnce if rates are 6,7,8 or 9 per cent. I must say I find it rather odd that the top man raises rates and at the same time says this should be enough. Inflation is high when its over the 3 per cent upper limit and rising and this is not happening and will not happen. I am surprised NZ has given in to such pressures so its now New Zealand 0 Japanese Housewife 2. And more importantly the currency of NZ is now being controlled by external factors so we have an impotent Government along with the RBNZ, not a good time to be a kiwi( but I love the place and will be back again next year).
Chris (Dunedin)
Dr Cullen could usefully intervene by calling Dr Bollard to account for the Reserve Bank's dismal operation of monetary policy. The signs have been there for over two years that the Bank's "management" of monetary policy by interest rates alone has not, is not and will not work. The Bank has totally ignored the money supply, which by its own measure of M3 has grown spectacularly. There are a range of measures that the Bank could have implemented, which would have accelerated the effect and effectiveness of its interest rate policy. The Bank has ignored them.
Concerned Citizen
The exchange rate increase is being fuelled by overseas investors who have diverted hot money into the New Zealand economy to obtain maximum returns. Increasing the OCR will further fuel this flow. The Reserve Bank needs to keep the OCR steady while trying to rebalance the exchange rate based on fundamentals. A drop in the exchange rate will reduce foreign investors return on investment. This will cause the exchange rate to return to a natural state. There are many ways that the government can deflate the economy. One way is to use surplus cash to purchase foreign investments (especially in Euro and Yen).
Sanjay
Bollard as the appointed head of the Reserve Bank has limitations on the resources at his disposal to curb inflation. The government also needs to do something to stop the inflation as well, especially to curb the rising real estate price & the currency rates. That is the real test for the politicians, whether there personal interest overcome the interest of the common people whom they represent. Key has recently stated that prices in UK, USA etc are also high though the real estate prices are high there as well even though there is capital gain tax there. Isn't there a recent report which says the cost of house is getting beyond the reach of more and more Kiwis and families with income of up to $70k per annum cannot afford to buy their homes and a house cost about 6 times of an annual average salary which ranked higher than many other OECD countries? What is of concern is the average cost of housing for an average family and not of costly houses alone nor about the comparable level of incomes in UK, USA etc.
But of course, when he himself owns half a dozen homes here, how can capital gains be the right solution to curb the rampant rise in real estate prices?
Albert
Can't do the job, so both of them should resign, failing which, should be fired and let someone more capable take over.
Peter
Yeh, great let's just raise the rates so the dollar rises even more & people like me can't pay the mortgage as pay rates are crap! Sure helps us doesn't it! Aussie here we go!
Currently Switzerland so mobile won't work.
Dr Bollard was far too quiet before the last election. Now the time to pay the piper comes, he should stick the rates up again, then straight away do the right thing by all the NZ young people getting stuffed over, and resign without taking his super.
Worried for NZ's future
I can't believe that we live in a country where the norm is to squeeze any life out of growth and development, especially in regards to exporting. We want to be getting ahead and feeling comfortable to step out to export, not pushed against the wall by crippling interest rates and difficult dollar costs. There is certainly no way ahead for people wanting to get out there to produce products and processes for any foreign market. The only way we can get around this is by continually supporting the growing Chinese market who is now thriving on NZ manufacturing everything there as there is certainly no point in putting any development in NZ, the economy just doesn't support this, thanks to the Reserve Bank.
Vaughan Chetwynd
The Reserve Bank has only one tool to control inflation, and it is no longer an appropriate tool for the 21st century. Bank rate worked in the mid/late 20th century when fixed rate mortgages were relatively scarce, and any bank rate changes hit home almost instantly. But in today's economic climate, people are buffered against interest rate rises and the effects of any change take years to come through. Can the Reserve bank truly control house prices at all? I doubt it. Taking exchange rates into account, we are one of the cheapest countries in the developed world in which to buy a house, and this will always encourage an inflow of purchasers from abroad, pushing up prices. But we are one of the most expensive countries in the world in which to buy a house, when house prices are compared to national average income. This suggests to me that the bank rate is simply not the appropriate tool to use. It is an economic problem which only the Government can solve. And the solution will not be quick.
Greg
These ongoing rate hikes will only fuel overseas appetite to invest in our dollar and push the NZD higher. In the meantime our exporters are turning the lights off and if they can afford it, are setting up business offshore. The Labour government has championed and funded our export growth as a key economic issue - now they let it all crash! Can someone explain the sense in that?
Brad Rees
The greatest (and fastest growing) cost to our family is rent, electricity and water which consumes over 60 per cent of our household budget. Instead of punishing our life blood exporters, why doesn't the government come down heavily on property speculators, especially those that own more than one property. After all, what people want is an affordable roof over their heads, not some overpriced third world, wood and cardboard box. Legislation that punishes those who are building multiple property portfolios on the back of LAQC loopholes; like an ever increasing capital gains tax tied to the number of properties and individual or organisation owns, would hopefully see our third world shacks drop viciously in value and allow average Joe/Josephine soap into his/her own home. The political party that shows willingness to follow this course gets my vote and I'm sure I'm not alone. Similarly, I have always questioned why we need expensive marketing organisation like the utility companies to on sell what essentially should belong to the government. Nationalise them all I say.
Murray (North Shore)
Unbelievable, the guy is stark raving mad. Indications are that the housing market is already flattening out and this is only going to fuel more overseas speculation in our currency and also impact upon exporters who we should be encouraging the most! Expect to see a crash in the NZ market. If the Government had any balls they would have stepped in.
Andrew
Call an election, Mr Cullen, you ultimately are responsible for mismanaging the economy, failed miserably so do us all a favour & do the decent thing & resign.
James Fitzgerald
If we spend 15 per cent more than what we earn what do we expect? For it to get any easier? Should have sold those houses in March/April - now you're in real trouble. It was never going to go on forever. I do feel sorry for exporters but it's all swings and roundabouts. I'm young and can't afford to borrow at current rates so will just sit and pick up from the fall out hopefully and then get my start. People are saying 'Dr Bollards obsession with inflation' - hello that's the man's job, he's a Doctor in it and he's thinking of the big picture, not your personal circumstances - that's your responsibility!
RJ from Palmy
Absolutely stupid. Mr Bollard along with our current Labour Government will drive us into a deep depression - take note of some overseas commentators. Who has reached their Used By Date? Who is the Weakest Link?
Erica Parker
OCR up - makes my blood boil, this news is very depressing. It is all to do with inflation and bugger the rest of us. Think it is time to use another tool. We are a couple who both work in the educational sector (not highly paid) and find it hard to survive financially.
Nick
Bollard did the correct thing within the parameters that he has to work in. Note that the dollar has dropped this morning (possibly due to Bollard's statement commentary that indicated that this may be the last rise "Provided they keep this up, and the pressure on resources continues to ease, we think the four successive OCR increases we have delivered will be sufficient to contain inflation". Bollard knows that there is a high probability that dairy farmers will get two season worth of payouts next year. Bollard knows also that there is still a lot of pain to flow through to home owners, the majority whom roll off fixed home loans through the course of next year.