Search
  • Robert MacCulloch

Is the RBNZ starting to show regrets?

The RBNZ has just announced that it is not changing the Official Cash Rate, which is at 0.25 percent, thereby keeping interest rates at historic lows. The "Summary Record" of its Monetary Policy Committee, however, is a bit confusing. My interpretation is that they know in their hearts it was a mistake going down the road of the $100 billion quantitative easing program and now are clinging onto their previous dire economic assessments to avoid admission of that mistake. Other countries may have engaged in such polices, but NZ's situation never came close to justifying such a radical monetary policy strategy.


First, we see a formal acknowledgement from the RBNZ that it's contributed to our super pricey housing market (and thereby wealth inequality) when it states how "stimulatory monetary policy is playing a role in lifting house prices".


Second, the Monetary Policy Committee dismisses concerns about price rises in (non-property-related) consumer goods & services. Yet earlier this week an NZ Herald news headline screamed "Prices rise as Cost Pressures build on Business". The latest NZ Institute of Economic Research's Quarterly Survey of Business Opinion revealed cost pressures are growing - retailers feel increasingly confident they can raise prices. A net 8 per cent of firms raised prices in the March quarter - a turnaround from the net 2 per cent which cut prices in the previous quarter. The NZIER says that "these results suggest a pick-up in inflation pressures over the coming year". And the latest Retail Radar survey of Retail NZ members showed two thirds of retail businesses expect to see prices rise over the next quarter.


The Monetary Policy Committee plays down these "near-term price increases" as a "temporary" state of affairs. My prediction is that the cost of living is on the way up in NZ and interest rates will be going up sooner rather than later.


For sources, see:

https://www.rbnz.govt.nz/news/2021/04/monetary-stimulus-continued


https://www.nzherald.co.nz/business/prices-rising-as-cost-pressure-builds-on-business-nzier/ATJ7XS5ROGPYN7BY53TCT5766E/