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Today, Statistics NZ reports that "the consumers price index (CPI) fell 0.5 percent in the June 2020 quarter as the COVID-19 global pandemic saw cheaper petrol and falling hotel and motel prices". Should there be further drops in the CPI in the context of an Official Cash Rate stuck close to zero percent, then NZ could start to experience rising real interest rates. (The real rate equals the nominal rate minus the inflation rate). Rising real rates at a time of economic weakness can be bad news for the economy. Since they mean that the real cost of borrowing is rising (after adjusting for inflation).


Last year, I wrote an article arguing that the 50 basis point OCR cut by the RBNZ in August was a mistake. One of the reasons was that the cut took the OCR so close to zero that if there was a recession in the near future (which did end up eventuating) then the RBNZ would be unable to cut rates much further. Which is the situation NZ finds itself in now.


For the full article, see:

https://nzinitiative.org.nz/reports-and-media/reports/the-unreserved-bank-of-new-zealand-why-unorthodox-monetary-policy-needs-boundaries/

  • rmacculloch

DownToEarth Kiwi reported earlier on the large government grants being poured into certain Queenstown businesses under the auspices of the"Strategic Tourism Assets Protection Program". The applicants to these grants no doubt argued that demand for their services was plummeting.


But is it? Yesterday it was reported that "Thousands of domestic visitors have hit Queenstown’s skifields during the past two weeks, with 'unheard' of numbers crowding some slopes at times. NZSki chief executive Paul Anderson said Coronet Peak and The Remarkables were seeing upwards of 7000 visitors a day during the school holidays, peaking last Friday at 10,000 – the busiest day he had seen in his seven years with the company. Last year during school holidays we had about 40 per cent Australians. We thought we would lose that. Kiwis have [replaced] the Australians.”


It appears that large numbers of Kiwis are substituting their overseas holidays for domestic holidays. Just goes to show how careful one has to be before spending millions of dollars in subsidies to businesses that could have otherwise been spent, for example, on more quarantine facilities to enable Kiwis to return to their homeland. What's the moral of the story? In times of crisis, one needs to prioritize spending.


See: https://www.stuff.co.nz/travel/back-your-backyard/122139232/southern-skifields-underestimate-huge-school-holiday-crowds-seeking-snow

 

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Robert MacCulloch