Bollard taking us back to the 50s

My parents got some sort of government loan to build their house in the mid 1950s. I’m not sure if it was becasue Dad was a returned serviceman or if these loans were available for anyone, but I do know the interest rate was fixed at 3%.

I don’t think rates have been that low since then but Reserve Bank governor Alan Bollard has nearly taken us back to those times by reducing the official cash rate from 5% to 3.5%.

His rationale is continuing global uncertainty and confidence that inflation will be “comfortably within the 1 – 3 percent target band in the medium term.”

Interest is one of the bigger costs for farmers, not just for the mortgage but for working capital, especially those in areas like sheep and beef or crops where they get paid in big lumps a few times a year in comparison to dairying where you get a monthly cheque.

The change in the OCR won’t have an immediate impact on existing loans but it should give confidence that we’ll be paying less interest next time loans are negotiated.

It also reinforces tha major difference between what’s happening now and the ag-sag of the 1980s when interest rates and inflation were higher than 20%.

2 Responses to Bollard taking us back to the 50s

  1. […] Bollard taking us &#98ack to the 50s « Home&#112addock […]

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  2. lucy says:

    Maybe someone who is better versed in economics can put me straight because I am really confused.

    For the last 10 or so years the Reserve Bank has told us that they had to keep increasing the OCR to ensure that inflation remained under 3%. This caused endless problems (inflation of the NZ$ especially by overseas investment the Japanese housewives investments, exports, increased housing values etc) but we were told there was absolutely no other way as inflation could not be allowed to rise above 3%.

    Inflation goes up to 5% and hello we are lowering the interest rate willy nilly and to hell with inflation.

    I am well aware of the worlds economic plight but my argument is how much better off would we have been without a ridgid Reserve banking scheme that worked well for the 80’s and the first half of the 90’s but in my opinion was absolete by 2000. Things and Times change what was right then, was not necessarily right in 2000. We kept doing the same thing expecting a different outome that didnt work.

    What was the reason for sticking to the reserve bank act of the 80″s?

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