Keeping OCR rise in perspective

The small increase in the Official Cash rate, from the record low of 2.5% to 2.75%,  has provided the Opposition with the opportunity to run round like chicken little.

They need to keep it in perspective:

Paul Goldsmith: How does the new 2.75 percent official cash rate compare with previous cash rate settings, and what steps is the Government taking to ensure that interest rate increases are not as severe as they were in the mid-2000s?

Hon STEVEN JOYCE: As I said, the official cash rate has been at a record low of 2.5 percent since March 2011. As the Reserve Bank Governor has indicated many times, it could not remain at this expansionary level for ever, particularly as the economy picks up strong momentum. The new official cash rate of 2.75 percent is significantly below its record high of 8.25 percent, which it was through much of 2008. The Government continues to support lower interest rates with its responsible fiscal policy and by addressing supply issues in the housing market. This has been good news for families who faced mortgage interest rates of nearly 11 percent back in 2008. A family with a $200,000 floating rate mortgage has been saving about $200 a week compared with 5 or 6 years ago. If the official cash rate increases by 1 percent over the coming year, this would be worth around $38 a week on that mortgage.

Anyone with a floating rate on a mortgage of $200,000 has been saving about $200 a week compared with what they’d have had to be paying before Labour lost the 2008 election.

If the rate goes up by 1% in the coming year they’ll be paying another $38.

No increase will be welcomed, but it is better than run-away inflation which the increase in the OCR is designed to forestall.

Paul Goldsmith: What reports has he seen on alternative approaches to economic and monetary policy, and how would these impact on interest rates for New Zealand households?

Mr SPEAKER: The Hon Steven Joyce, in as far as he has ministerial responsibility.

Hon STEVEN JOYCE: I have seen an alternative policy reported, claiming that apparently you can go soft on inflation by tinkering with the Reserve Bank of New Zealand Act and that somehow this will keep interest rates lower for longer. The trouble with those sorts of approaches is that the prescription does not stand up to scrutiny, particularly if you accompany it with much higher Government spending. History has shown that under Governments that go soft on inflation, the people who are hardest hit are those on low and fixed incomes, because their spending power does not keep up with the cost of living. Yet the very politicians who complain about the cost of living can now apparently approach a policy that would set them soft on inflation. That just does not make any policy sense. If you want to look after the vulnerable in society, control inflation.

Inflation is theft by incompetent economic management.

It erodes wealth, be it what you earn or what you save.

It reduces real buying power and the people it hits hardest are those who have least to begin with and are least able to cope with less.

12 Responses to Keeping OCR rise in perspective

  1. Mr E says:

    “Chicken Little” – Funny.

  2. robertguyton says:

    Talk about inflated – the Government’s promises over Anadarko –
    “Drill. baby. drill” you all cackled, and drill they did!
    How’s that working for ya now?

    Then there’s the sale of energy assets – Genesis, going cheap, cheap, cheap!”
    10 billion dollars into the Government’s coffers Inflated Bill and John boomed!
    Fire-sale prices, that’s what we have now.
    Fire-sale prices.

  3. Paranormal says:

    You need to get back on the meds for your KDS RG. It seems to be spreading into NDS. The sad fact Anadarko have not found oil equates to a National failing? You think the Greens/Liarbour economic kamakaze attack on power companies means there is less return to New Zealand is a good thing?

    And you’re the one suggesting there’s a lack of perspective? You are starting to sound tired and desperate.

  4. Quintin Hogg says:

    RG, gloating over failure?
    That is sad and speaks volumes about you.

  5. robertguyton says:

    The likelihood of Anadarko spilling oil into the Great South basin has reduced to zero, Quintin. As an environmentalist, I certainly celebrate that.
    As for Genesis, the situation is enormously embarrassing for the Government, Bill English and John Key, fire-sale prices for an asset we all shared and benefitted from, so there’s nothing there to celebrate at all, is there. Perhaps you are raising your glass to Bill and John and the Genesis sale – if so, please share the reasons for your joy.

  6. robertguyton says:

    “The Government has poured sugar on its offer of shares in Genesis Energy, pricing the company in a range below analyst valuations last month and offering a bonus share for every 15 held for just a year.”

    Sugar is poured on things to mask the bitter taste.

  7. robertguyton says:

    “it means that during the election campaign…whenever the Key government tries to scare us about the prospect of a Labour/Greens cabal running the economy, or with Russel Norman being a heartbeat away from the Finance portfolio or whatever else the Crosby/Textor crew come up with to try and stampede voters into the arms of the centre-right, such tactics can be rebutted with three simple words: “Genesis share float.” At a stroke, this should vaporise any claims that National is a better, more responsible manager of the economy, and a better steward of public assets.”

    So ‘shorts’ says.

  8. robertguyton says:

    ” So the shares have been set at an especially low price, the dividend yield has been set at an especially high level and buyers will be given bonus shares for every 15 shares they purchase. Such generosity, with something that belongs to taxpayers.”

    Gordon Campbell says.

  9. robertguyton says:

    “Here’s what responsible economic management – National style – now looks like. You sell down state assets and forego the full flow of returns in perpetuity, when it would have been demonstrably cheaper to borrow the money involved, and pay it back. That’s even before you count the transaction costs of the selldown process, which are now running in the hundreds of millions of dollars. Only a small segment of the wealthiest New Zealanders have benefitted from this process – and even they have got to the point where they need to be gifted with all kinds of inducements to participate. As a consequence, the new investors in our energy sector have been gifted with a lever to extract ever higher returns from ordinary puinters, by jacking up their power prices even faster…As indicated above, this debacle really needs to be remembered and recounted in full, come election time.”

    Any comments on Campbell’s claims?
    Anyone? Tracey? Ele? Quintin?
    Anyone?

  10. jabba says:

    bOb, take a deep breath the go out and mow your lawns

  11. Gravedodger says:

    Robert if you had a smigeon of commercial understanding you would be embarrased with your ranting on oil exploration and share floats.
    So Andarko didnt discover commercial hydrocarbon yields, perfectly withing any drilling expectations. ‘Strike’ rates vary between 1% and 10% on wells drilled.
    Drilling in NZ environs is extremely unlikely to discover oil at pressures that could lead to a “blowout” such as the recent one in theGulf of Mexico.
    The “taxpayers you are suddenly soo concerned about still own the generation assets of MRP, Contact Meridian and Genesis all the current government has sold are “shares” in the companies that operate the infrastructure. They cannot be carried off but equally a future government is seriously proscribed in their ability to hike prices as Ms Clark’s mob did with connivance of the Melons to a point where power prices escalated by 70% in 9 years, as the 49%ers will also benefit.

    We do not need constant reminders of your knowlege deficit on matters commercial but whatever spins your wheels I guess.

  12. robertguyton says:

    Gravedodger – Anadarko has failed, and I’m delighted that the threat of environmental harm resulting from oil-exploration accidents has reduced accordingly. Oh that the Government would invest in activities that don’t carry the risk oil-exploration does! Still, the new one might.
    Genesis is a dog, and you know it. Its shares are being flogged-of at bargain-basement prices – how can that benefit the New Zealand taxpayer over what was already being returned or projected to return? Your own ‘commercial understanding’ is appalling in this matter, corrupted no doubt by your ideological adherence to the National Party, the same party that has borrowed at such high levels by comparison to the previous Government.
    What ‘spins my wheels’ is ‘appropriate investment’ and oil ain’t it. Neither is flogging-off assets that could have supported NZ into the future.

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