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  • rmacculloch

The Reserve Bank of Australia just went and made the RBNZ look reckless

In a bunch of radio interviews these past weeks, I've argued that the RBNZ should not have over reacted to inflation (having under reacted in 2021) by hiking the Official Cash Rate by 75 basis points in order to "engineer a recession".


When asked on Radio NZ what would have been the best policy, my view was to go for a 25 basis point rise, 50 at most. The reason is that inflationary pressures from oil & supply chain problems have been easing, so there is no need to throw the Kiwi economy into a recession and cause untold pain to those with large mortgages when that situation could've been avoided. Now other commentators have picked up on this line - and our position has been bolstered today by the Reserve Bank of Australia (RBA) increasing its Cash Rate by 25 basis points. Inflation in Australia in running at similar levels to NZ.


The wiser move by the Reserve Bank of Australia simply reflects how its senior management team is qualified to do its job. It includes four PhDs in economics, two of which are from the Massachusetts Institute of Technology (MIT), arguably the best department in the world, as well as graduates from the likes of the London School of Economics.


Our RBNZ Senior Management Team, by comparison, doesn't include a single person with those kinds of qualifications and not a single PhD. When you don't choose the best people for the job, the end result is bad monetary policy and mortgage misery for millions. Are there local Kiwi economists who could have been chosen who match the kinds of qualifications of the Reserve Bank of Australia team? Yes, but they don't have friends in the right places.

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