Labour is threatening to tinker with the Reserve Bank Act to keep interest rates down.
They are conveniently forgetting that interest rates have been at an historic low for three years and interest rates were far higher when they were last in government.
The OCR increased by 5.00 in November 1999, went up and got to 6.50 in May 2000, stayed there until March 2001, went down to 6.25 and continued to drop until it got to 4.75 in November that year.
It was all up from there reaching 5.75 in August 2002 before going down again and getting to 5 in July 2003.
The reserve Bank increased it to 5.25 in January 2004 and it climbed from there, reaching 8.25 in July 2007 and staying there until it went down to 8 and was at 6.5 by October 2008.
National won the election in November and the OCR went down from then, getting to 2.5 in April 2009, increasing to 2.75 in June 2009 and 3 in July. It stayed there until March 2011 when it went down to 2.50 where it’s stayed until today.
Several factors have influenced the low rate, including the global financial crisis.
The government had no influence over that but it has had influence over its own spending which is another big influence on the OCR because of its impact on inflation.
National has been very prudent with its spending and intends to continue that as the economy grows.
Labour and its potential coalition partners appear to have no familiarity of the concept of fiscal prudence and should they get into government, their high-tax, high-spending policies would fuel inflation and drive up interest rates.
Labour couldn’t keep interest rates down last time it was in government.
What would it do differently if it was in power again?
It’s not going to rein in its own spending and tinkering with the Reserve Bank Act would do more harm than good.
It would lead to higher inflation which would do far more harm than the small increase in interest rates we got this morning.
Hat tip for chart: Keeping Stock.