Has Allan got it wrong

[Scooter]

Has Allan Bollard done the right thing?

I think that he has not. There are signs that the currency is coming under pressure due to the high exchange rates. Already the forest industry are laying off staff, how many more to come.

He should have left the OCR rate for a further period as he had for the previous two periods. The signs are there!!

He is going to kill the good times with a thump, rather than a slow deflation.

Any comments

[whiteheron]

Scooter

I believe that the rate would have been better left where it was
Increasing it will no doubt push the already high exchange rate up further
I pity the exporters , they now have very serious problems I believe

Oh well , more junk and rubbish imports to waste our funds on !!

As for the property market , I believe that it would self correct given a bit of time

By the way , it appears you have omitted a word ( not ) at the end of the first sentence , second paragraph --- just seems that way from the rest of your comments

[Footsie]

His inflation target is too tight.

He seems to be missing the big picture here.

[Cooper]

I think the problem is that he is focussing on the short term when he should be focussing on the medium term. In the short term inflation may well have breached the upper part of the band, but in the medium term there were a number of factors which should dampen the NZ economy down without the further OCR rise. Now the result will be a little more pronounced, which isn't the best outcome, IMHO.

[Scooter]

The medium term is the right picture. Short term is too volitile as we all know.

And another thing, what about Dr Cullens comments yesterday. timing, and influence. Look at it this way.

Dr Cullen knows rates were going to increase, so he see the writing on the wall with the currency increase (let alone the increase in tax he can take). He makes a few comments, and the currency drops a similar amount to what it went up today.

Who is screwing who

[Halebop]

I think he got it right. I would not be surprised if we see mortgage rates around 9.5 to 10% by mid year. He's on a hiding to nothing though because anything he does at the top of so many cycles (sharemarket, employment, housing etc) will be seen as a catalyst.

USA continues to print money. The plan to debase the long term value of gold seems to be faltering. China continues to buy every basic resource in sight. The probability of Inflation getting out of hand is better than it has been for more than 15 years.

I'm getting real defensive about sharemarket prospects too. Valuations are getting demanding at a time interest rates are still rising. Someone is getting it wrong and I'm picking it isn't Bollard. My sharemarket exposure is slightly above one half of one percent.

[Gryffyn]

Yes, a few more rises and money in the bank looks more atrractive. That said, quality holdings with NZ assets and off-shore will be fine in the longterm.

[limegreen]

I don't think I really read your old post on under/overweight too carefully, because I didn't actually comprehend how cashed up you are! Do you believe there are some better buying prospects in the medium-term? Just curious, as I have been increasing my cash reserves recently, but nowhere near your levels.

[kittydashwood]

Moved all cash from the US to NZ two weeks ago, the recent rise was telegraphed as is the next one (barring forex disaster). However Alan is a moderatee and I'm sure he will stop there and let the exporters have a breather, this winter will ease his worries about house values but add to it with the wage rounds. I'm picking a little leaning from Helen to settle all pay disputes before the election.
After three terms we should lend Helen and Alan to the White House god knows they need it.

[trendy]

Kitty.

Shouldn't you be moving your cash from NZ to the US? NZD has some more life in it yet before it turns. Then it will be time to send back to NZ. The NZD economy cannot handle the current account deficit over 6% of GDP for to long....

[kittydashwood]

Kept shares but moved cash because the US $ has further to fall in the next 9mths and the Kiwi will get to .75 before Alan really starts to panic or resigns himself to living with a higher rate of inflation. Maybe I will move it back before the Xmas rally stateside.

[Cooper]

quote:Originally posted by Halebop

I think he got it right. I would not be surprised if we see mortgage rates around 9.5 to 10% by mid year. He's on a hiding to nothing though because anything he does at the top of so many cycles (sharemarket, employment, housing etc) will be seen as a catalyst.

USA continues to print money. The plan to debase the long term value of gold seems to be faltering. China continues to buy every basic resource in sight. The probability of Inflation getting out of hand is better than it has been for more than 15 years.

I'm getting real defensive about sharemarket prospects too. Valuations are getting demanding at a time interest rates are still rising. Someone is getting it wrong and I'm picking it isn't Bollard. My sharemarket exposure is slightly above one half of one percent.


I agree with your point regarding the US exporting it's loose monetary policy to the rest of the world at a time which is very inconvenient for NZ. Not sure about China but the balance of evidence seems to support continued high growth rates. It's going to be interesting for the next few years and Bollard has probably given himself more of a weapon to deal with anything dramatic.

But I would have liked a "wait and see" approach for another few months just to be sure it was necessary. That said, I do get the point behind the rise:

"It's important that the people of New Zealand realize that inflation
won't be allowed to get away," Bollard told journalists later.

I have the feeling that Bollard was acting on inflationary expectations, not just on inflation itself.

[Bling_Bling]

High interest rate and high NZ dollar. A sign of a slowdown ahead. With a high dollar, time for Bling's family to have an overseas trips.


ps: cashed up

[Sky Tower]

Has Allan got it wrong ?

Yes.

[pago]

hi ,allan got it wrong,1 this will raise the nz dollar and harm nz exporters and the deficit,2 raising interest rates is now a blunt axe/useless tool.the banks will do another 2 year mortgage fixed rate competition and allans interest rate hike is negated,allan needs a new tool,cheers pago.

[winner69]

quote:Originally posted by Sky Tower

Has Allan got it wrong ?

Yes.


Yes as well ... should have been more ruthless a year or so ago instead of dilly dallying around


Even today 0.25% is nothing ... needed more to knock the stuffing out of the economy ... then we would see the currency go down in the long term.

This high currency is great for me ... keep it going Alan but be more agressive please.

Imported raw materials and some pricing power makes for super profits and big bonuses for winner ... no need to worry about the impact of a stuffed economy on domestic demand in a few years time. Will have to face up to that when it happens but make hay while we can.

Nobody really cared when the dollar was down at 40 cents and stuffed many business as well so why should we worry about exporters today who appear to be only compete against the world on price .. and we are meant to be fell sorry for them when things aren't in their favour.

[Paddie]

On a selfish basis, I love the high currency and interest rate.

I sold 18 months ago and have money invested, and no debt. The higher the better for me, but for mortgage owners, it will be negative.

Paddie[:p]

[bongo66]

Shouldnt have an OCR at all. Rate should be set by the market...

[Cooper]

quote:Originally posted by bongo66

Shouldnt have an OCR at all. Rate should be set by the market...

Interested to hear how NZ could manipulate monetary policy under this scenario, Bongo. I imagine you've thought that one right through and I must admit I can't see it working... illuminate me, if you will.

[bongo66]

quote:Originally posted by Cooper


quote:Originally posted by bongo66

Shouldnt have an OCR at all. Rate should be set by the market...

Interested to hear how NZ could manipulate monetary policy under this scenario, Bongo. I imagine you've thought that one right through and I must admit I can't see it working... illuminate me, if you will.


The current scenario promotes manipulation by currency traders coop-our banks used to decide via the market what the rate would be, its what markets are about-competition.

B

[Cooper]

Governments need a mechanism to control inflationary expectations... if they have free capital flows and a floating exchange rate, then they need monetary policy to control price levels. Although having the market decide interest rates sounds good in theory you risk runaway inflation and lose the inability to smooth cyclical factors.

Otherwise we could easily be reverting to the inflationary scenarios of the 70s and 80s, with the added negative of having no control over savings or investment which would lead to more cyclical volatility. NZ would then face scenarios similar to the Asian currency crisis, Argentina etc as NZ moves from being perceived as a safe place to invest to one which is perceived as a highly volatile country.

Winner do you think one percent enough or would two have been better yes i agree he mucked about to much and now will have to increase more than if he had hit hard last year.