Latest news with #OfficialCash
NZ Herald
12 hours ago
- Business
- NZ Herald
John Key is right that New Zealand needs to cut interest rates but we need more than that too
Key warns the coalition risks losing the next election. He says the Reserve Bank got interest rates wrong again – first too low, now too high – and it's crushing the economy. The data backs him. Massey University's GDPLive shows GDP growth at just 0.261% for the quarter and down 0.53% annually. It puts inflation at 2.18%. With dairy booming, most of the economy must be in recession. The Reserve Bank's Nowcast GDP tracker is down 0.288% for the quarter. Key says that with no sign of wage inflation, the Reserve Bank should cut the Official Cash Rate by 100 basis points – from 3.25% to 2.25%. The Taylor Rule that central banks use to guide interest rates indicates the OCR is 50 basis points too high. Key is also right that the central bank's money printing fuelled the inflation that destroyed the last Government. Now, with rates too high, it's strangling growth and may destroy this one. It seems the Government had no plan for replacing former Reserve Bank Governor Adrian Orr. I nominate Key. He's qualified and has the judgment the job demands. If appointed and interest rates are cut, the economy would be growing in election year. If Key is unavailable, appoint the economist who warned that $100 billion in quantitative easing would cause inflation: Auckland University's professor Robert MacCulloch. Internationally recognised for his work on central banking. If the coalition aspires to more than winning elections, it must do what Key never did: tackle why New Zealand is sliding down the OECD rankings. It's not that the world doesn't want what we sell. Dairy prices are excellent, meat sales are solid, and tourism is recovering. We're just badly managed. To lift our standard of living, we must raise our productivity which has been static for a decade. The Treasury's recent analysis highlights that 'New Zealand has much lower levels of capital per worker than OECD peers'. We lag Australia because its compulsory superannuation pumps billions into productive investment. We should have shifted to savings-based super 50 years ago. That's no reason not to do it now. Last week's abandonment of open-plan classrooms was a good start to lifting education standards. Abandoning pupil-led learning would be even better. Health is another failure. We have a Soviet-style monopoly with low productivity. Waiting lists grow despite record spending. More money is not the answer. Singapore achieves better outcomes for less – based on compulsory savings, price transparency, and private providers. We should copy it. One thing Key did achieve was restraining the growth of the civil service. According to the International Monetary Fund, Government expenditure was an estimated 41.39% of GDP in 2023. The 59% of the economy in private hands just isn't big enough to generate the investment, wealth and exports we need. We are over-regulated. The OECD's 2023 Government at a Glance ranked New Zealand last in the OECD for barriers to permits, licences and foreign investment. The Regulatory Standards Bill isn't a nice-to-have. It's essential. Key is also right about the ban on foreign home buyers. Foreigners won't bring their capital or expertise if they're told they can only rent. There are about 200,000 able-bodied adults on Jobseeker Support. That number has barely moved since Key's time, despite job vacancies and social investment strategies. Australia has had a Work for the Dole scheme since 1997. Employment Minister Peter McCardle introduced Work for the Dole scheme in 1998. Labour scrapped it. We should try again. Last year, in an international comparison, New Zealand's economy ranked 33rd out of 37. That makes it a mystery why Luxon waited so long to visit China, our biggest trading partner. And why did the Prime Minister go to a Nato summit in Europe? Every other Pacific PM stayed away knowing the summit would pledge to spend 5% of GDP on defence and criticise China. As New Zealand is not going to do either a PM focused on growth would have stayed at home. We have a bloated bureaucracy focused on political correctness rather than the hard work of delivery. An opposition that thinks New Zealand can tax its way to prosperity. An economy that's 41% government, starved of capital, and bound in red tape. Without reform, we will never climb the OECD ladder. Key's rate cut might win the next election. Only real reform will return New Zealand to the top tier of the OECD.
NZ Herald
5 days ago
- Business
- NZ Herald
Sir John Key urges 100-basis-point interest rate cut to boost NZ economy
While GDP grew at 0.8% in the first quarter of this year, there are fears some economists fear the second quarter could be negative. The manufacturing and services sectors both remain weak and on top of that, the property market is subdued. Adrian Orr, Reserve Bank Governor between March 2018 and March this year. Photo / Mark Mitchell Key maintained that Orr, who resigned as Reserve Bank Governor in June, mismanaged monetary policy over several years. 'Adrian fixated on getting interest rates to zero,' during the pandemic, Key said. 'Then he fixated on having them too high for too long. 'A lot of the indicators the Reserve Bank looks at are lagging indicators. They're quite late to the party,' Key said. The Reserve Bank held the Official Cash Rate (OCR) at 3.25% on July 9 but hinted heavily in commentary it expects to resume rate cuts later in the year. Acting Reserve Bank Governor Christian Hawkesby won't give an in-person briefing until the August 20 rates review. Financial markets are currently pricing in a 70% chance the OCR will be cut by 25 basis points in August, with a 50% chance of another cut by February 2026. Economists expect the OCR to bottom out at around 2.5% to 3%. 'The best I can do is rent a house?' Immigration Minister Erica Sanford recently said there had been more than 200 applicants to the 'golden visas' introduced in March, with 100 approved in principle so far and more than $1 billion on the table for investments. Applicants have to pledge at least $5 million for 'growth' investments such as start-ups or $10m for 'balanced' investments. Key said 10,000 investor immigrants would be better, but many were put off by the foreign buyer ban in housing. 'If I'm turning up with $100m, are you telling me the best I can do is rent a house?' Key said. 'We're a little country at the bottom of the world. And to make that work, you need foreign capital. You need smart foreigners to come here. You need positive population growth, migration,' Key said. The former PM did not see the foreign buyer ban, championed by NZ First, as keeping house prices down, at least in everyday suburbs. 'If I'm a billionaire in China, I'm not going to wake up and think I want to buy a $800,000 house in Pakuranga,' he said. 'They might buy a $50m property on the lakefront in Queenstown.' Key said agriculture was booming, but New Zealand was stuck in an 'L-shaped recovery, not a V-shaped recovery like after the GFC'. Key saw a turnaround in house prices, fuelled by lower rates, as the key to restoring confidence. 'If you want to get things going, the core of what's wrong is the housing market. The guts of what's wrong is that the housing market is going down, not up,' Key said. 'When house prices go up, everybody tells the pollsters, 'Oh that's terrible, my son or daughter can't buy house. I feel really bad. The technical term for that is 'bulls***',' Key said. 'What they really do, is they say to their wife – or the wife says to her husband, 'God, we paid $1m for this house and it's worth $1.7m now.' Quietly they go, 'Oh, we feel rich. And then they go and borrow a bit from the ANZ and they go on holiday and they upgrade their kitchen, they feel good about life. So when you have a negative wealth effect, they feel bad.' The median house price in Auckland has fallen 3.4% in a year to $990,000, according to figures released earlier this year by the Real Estate Institute. Excluding Auckland, the median price rose 1.7%. As he called for lower rates, Key acknowledged he had skin in the game. 'My son's a developer, so I'm talking a bit from personal experience,' Key said. 'I'm just telling you, we have got so much stuff on hold. We own land all over the show, and we're just sitting there not doing anything. 'He [Max Key] goes, 'Mate, my tradies' – he's got a bunch of these guys on the payroll in different places – 'none of them had Christmas holidays. There's no work'.' It's the tradies, stupid Many tradies were working three-day weeks, Key said. And for the party in power, that was a problem. 'To win an election, you have to win where the tradies live,' Key said. And that meant winning West Auckland. 'Don't worry about Remuera, don't worry about anywhere else,' Key said, tracing similar ground to political commentator Chris Trotter, who once described that archetypal middle New Zealand swing voter as 'Waitākere Man', a blue-collar conservative. 'I'm pretty close to Chris, and I talk to him quite a lot. But I don't try to be his father," former Prime Minister Sir John Key says of his relationship with current PM Christopher Luxon. Photo / Mark Mitchell 'Don't worry about Remuera, you've got to win Te Atatū, you have to win West Harbour, you have to win Waitākere.' Is the former PM passing on his thoughts to his successor? 'I'm pretty close to Chris, and I talk to him quite a lot. But I don't try to be his father. I don't try to tell him what to do,' Key said. Although he had concerns about the current state of the economy, he saw Christopher Luxon's Government ultimately prevailing as things picked up. Key related that he said to Luxon: 'You bet your house against my house: is the economy going to be stronger or weaker by the time of the election in 2026? We couldn't bet because we both thought stronger.' Chris Keall is an Auckland-based member of the Herald's business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
Scoop
14-07-2025
- Business
- Scoop
Hit The Snooze Button; The RBNZ Holds The Cash Rate At 3.25%; And Where Have The Migrants Gone?
The RBNZ and RBA both hit the snooze button, leaving cash rates unchanged. One surprised markets, the other didn't. Amid still high global uncertainty, the common theme of 'wait and see' is prevailing amongst central banks. While the 90day pause on tariffs has been extended August 1st, countries likely spent the last week checking their post boxes as Trump mailed out letters outlining new reciprocal tariff rates. Our COTW breaks down May's migration data, where annual net inflows dropped to an 18-month low. Arrivals remain below long-term averages, while record numbers of Kiwi continue to head offshore Here's our take on current events Reflecting on the week that was, it was a less exciting week than what could have been. The RBNZ hit the snooze button, and market traders went to sleep. The cash rate was kept unchanged at 3.25%, no surprise. It was the first pause since the cutting cycle commenced in August last year (see our full review here). The key takeaway from the meeting though is that the RBNZ's bias still leans towards further easing. We're still on the trajectory for lower rates. As the RBNZ put it 'If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further.' From our perspective, and even the RBNZ's, the risks to the medium-term inflation outlook remain tilted to the downside. The RBNZ reaffirmed that while inflation is expected to rise toward the top of its 1–3% target band over the current and coming quarter, it still sees inflation staying within the band and returning to around 2% by early 2026. We, meanwhile, remain a little more bearish and see risks that inflation undershoots 2% in the medium term. So, given that monetary policy is set with a medium-term horizon, and medium-term inflation looks set to remain contained, it raises the question: why pause? If it had been up to us, we would have cut last week. And we'd cut again in August. But for now, the RBNZ have decided to take a wait and see approach. Waiting for what? Well, ' Some members emphasised that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.' So, the next few data releases will be carefully picked apart. Of note will be the Inflation release next Monday, along with labour market and inflation expectations data in August. It's not just the RBNZ taking a wait-and-see approach. The RBA surprised markets last week by keeping rates unchanged, defying expectations for a 25bps cut to 3.60%. In holding steady, the RBA cited a still-tight labour market. But much like the RBNZ, the RBA ultimately signalled it has time to wait and assess how inflation evolves, with US tariff developments. Last week we got word that Trump's 90-day pause would be extended to the 1st of August. At the same time, we saw a number of countries receive letters from the White House with new reciprocal tariff rates. For some countries, the newly prescribed rate comes in lower than their 'liberation day' rate, though still largely elevated. While for others, the rate remains unchanged. But for Canada, Mexico, and the EU, tensions have re-escalated. Trump is now set to raise tariffs on Canada to 35%, while threatening hikes of up to 30% for both the EU and Mexico. He's also made it clear that any retaliation will be met with even higher tariffs. Still, as we've come to expect, nothing is set in stone. And once again we're left waiting, now until August 1st. Chart of the Week: Our migration cooldown deepens. The month of May saw a seasonally adjusted 1,530 net inflow of permanent and long-term migrants. It's greater than the 1,090 net gain in April. But over the year, net migration has fallen to 14,809, the lowest annual net inflow since November 2022. That's around 120k below the record-breaking peak in October 2023. And migration is well below the historical average of a 20k net gain. The cooldown helps explain the weakness in the housing market and consumer demand. The net inflow may drop below 14k, because net inflows have averaged just 1,140 per month over the last three months. We're still seeing a record number of Kiwi fleeing the nest, at 71.2k departures in the year to May 2025. And with Kiwi arrivals sitting below long-term averages, the net outflow remains at record-highs. No surprises, Australia has been the biggest beneficiary. As Stats NZ estimates, of the 69,300 migrant departures of NZ citizens to all countries in 2024, 58% were to Australia. Net flow of non-NZ citizens remains large at 61k, but has continued to slow, and is down 100k from the peak.
Business Times
03-07-2025
- Business
- Business Times
New Zealand house-price recovery remains modest, says consultancy
[WELLINGTON] New Zealand house prices rose for the first time in three months, adding to signs of a modest recovery as interest rates fall. Prices gained 0.2 per cent in June from May, when they dropped 0.1 per cent, property consultancy Cotality said on Thursday (Jul 3). That lifted values back to February levels, while the 0.7 per cent annual decline was the smallest since September. New Zealand's property market lacks any strong momentum even after an aggressive series of rate cuts by the central bank, mainly because of a large overhang of houses for sale that favours buyers and keeps a lid on values. A sluggish economy and rising unemployment are also curbing enthusiasm to borrow. 'The subdued labour market remains an important factor,' said Kelvin Davidson, chief property economist at Cotality in Wellington. 'It's not only the direct job losses that are problematic, but a reduction in security for those who have kept their jobs will also be weighing on the property market.' Filled jobs are down to levels last seen in early 2023 as global uncertainty makes employers cautious about hiring. Economists expect the jobless rate to creep higher this year from 5.1 per cent in the first quarter. The interest rate on a two-year fixed-rate home loan is below 5 per cent at most local banks, the lowest since March 2022, although it is uncertain how much further borrowing costs will decline. A NEWSLETTER FOR YOU Tuesday, 12 pm Property Insights Get an exclusive analysis of real estate and property news in Singapore and beyond. Sign Up Sign Up The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) by 225 basis points to 3.25 per cent but in May removed an explicit easing bias, and economists at the four largest local banks expect policymakers will pause at next week's meeting. There is less than a 50 per cent chance of the OCR falling below 3 per cent this year, swaps data show. House prices have risen less than 1 per cent in the six months to June, and Davidson expects no more than a 3 per cent increase for the year to December, less than the 5 per cent he had previously projected. The RBNZ has projected 3.5 per cent. 'For every upwards influence on the housing market at present, you can probably find a downwards factor,' he said. 'In this environment where buyers have the upper hand and economic sentiment remains subdued, it's hard to see these flat market conditions suddenly turning around within a month or two.' BLOOMBERG
Scoop
15-06-2025
- Business
- Scoop
Monetary Policy Affects Some Parts Of The Economy Differently: RBNZ Analytical Note
Some parts of the economy and prices for some products are more sensitive to a rise in the Official Cash Rate (OCR) than others. Reserve Bank of New Zealand – Te Pūtea Matua research found that sectors that make or trade goods, as well as housing and real estate related sectors are among the most sensitive to changes in the Official Cash Rate. 'When the OCR increases, these sectors tend to cool more quickly. On the other hand, sectors like primary production including dairy and meat, are less sensitive,' the Analytical Note authors say. The research also looked at how monetary policy affects prices across a wide range of domestic goods and services, which do not face as much foreign competition as internationally traded goods. 'We found that prices for accommodation are quite sensitive. So, when the OCR increases, it puts downward pressure on the cost of going on holiday or business,' the authors say. An OCR increase also has a strong impact on the cost of building a home. This means when the OCR increases, there is relatively more downward pressure on these costs than for prices of other domestic goods and services in the economy. Some services, like household power prices and insurance, are slower to respond to increases in the OCR. We carried out this research because identifying which parts of the economy are relatively more sensitive to monetary policy allows us to better understand how various parts of the economy may react when interest rates change. It also means we can see more clearly if past policy decisions are working through to the economy as expected. Key findings: We investigate the sensitivity of output and prices to monetary policy at a disaggregated level, focusing on GDP sectors and CPI non-tradables subgroups in New Zealand. Identifying which parts of the economy are relatively more responsive to monetary policy allows us to better understand how various parts of the economy may evolve in response to policy decisions and to better assess whether past policy decisions are transmitting to the economy as expected. For GDP, we find that goods-producing and goods-trading sectors are the most sensitive to monetary policy, while primary production and public services are the least sensitive. For CPI non-tradables inflation, we find subgroups such as housing construction costs and accommodation services are more sensitive to monetary policy, while subgroups such as energy and insurance are less sensitive. The small sample size leads to greater variation in estimated effects across model variations. As such, this analysis aims to serve as a starting point for further work in this area.
