The Reserve Bank left the official cashrate unchanged at 1.75% yesterday.
The bank’s acting governor, Grant Spencer, said: ‘”Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”
This nudging along of economic policy doesn’t sit well with the man with the most influential say on future directions, NZ First leader Winston Peters.
While voters who believe we’re still in the era of first-past-the-post elections have been busily writing letters to editors explaining that, as National got most votes, it therefore won and should govern, Mr Peters has issued a few statements indicating likely shifts in economic direction:
- He said the decision to hold the official cashrate at 1.75% “maintains the tone of complacency on New Zealand’s economic outlook”
- He criticised National for taxing the NZ Superannuation Fund and not making taxpayer contributions for 10 years, and
- 2 days before the election, he issued a statement affirming his view that the immigration level was too high, criticising the National government “for deluding the public these migrants are skilled”.
Those who see Mr Peters as a negative poser should find his advocacy for change refreshing, because all his policies of the last week have been about improving economic performance.
He issued succinct statements on what the Super Fund ought to be doing, how the Government ought to be supporting it and how international markets bloated with ultra-cheap money are riding for a fall.
Crucially, Mr Peters might change the view commonly held by Western central bankers, including New Zealand’s, that the policy of printing money to stimulate economies is flawed.
But first the Reserve Bank view, from Mr Spencer:
“Global economic growth has continued to improve in recent quarters. However, inflation & wage outcomes remain subdued across the advanced economies and challenges remain with ongoing surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are near record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.
“The trade-weighted exchange rate has eased slightly since the August Reserve Bank monetary policy statement. A lower $NZ would help to increase tradables inflation and deliver more balanced growth.
“GDP in the June quarter grew in line with expectations, following relative weakness in the previous 2 quarters. While exports recovered, construction was weaker than expected. Growth is projected to maintain its current pace going forward, supported by accommodative monetary policy, population growth, elevated terms of trade and fiscal stimulus.
“House price inflation continues to moderate due to loan:value ratio restrictions, affordability constraints and a tightening in credit conditions. This moderation is expected to continue, although there remains a risk of resurgence in prices given population growth & resource constraints in the construction sector.
“Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters, reflecting volatility in tradables inflation. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2%.
“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”
If you think those closing words are familiar, you’re right: they’re identical to the bank’s closing paragraph in its March statement.
Peters on Reserve Bank
Mr Peters saw less of the smoothing, more a likelihood of troubled times internationally: “Beneath the veneer of stability, large risks are lurking in the global economy. The prolonged era of ultra-cheap money has created expectations that this unprecedented period will continue forever. Fed by cheap money, share & property markets are at record levels and have a long way to fall. In particular, the US share market has had an amazing run with barely a hiccup. In China, debt levels are staggering.
“Irrational exuberance rules. It is impossible to predict when, but something will go wrong and New Zealand should be prepared.”
On the Super Fund
The NZ Super Fund reported a 20.7% return for the year on Wednesday, but Mr Peters went behind that performance to look at a gigantic loss brought about by 2 National acts: “National should apologise to New Zealanders for robbing their NZ Super nest egg,” he said.
“Taxing the NZ Superannuation Fund, and not making taxpayer contributions for 10 years is a serious economic loser.
“The magnificent 20.7% return achieved by the fund in the year to 30 June will help meet future demand for NZ Super, but the nest egg could have been so much bigger if the National government had kept its hands off it.
“In 2015, then Finance Minister Bill English said: ‘Over time, along with the other funds, it will become a more & more significant part of the economy’. That’s ironic given he started taxing it in 2014.
“NZ First would encourage the fund’s managers to invest in infrastructure in New Zealand so it works for New Zealand’s long-term interests.”
As for the high net immigration level – 73,500 in the year to August – Mr Peters said it would ensure housing, health services & infrastructure would continue at bursting point.
“The Government deludes the public these migrants are skilled – it’s a myth, most of them are unskilled & drawn to this country in many cases by the generosity of our social services.
“Few countries in the world are as generous, or soft, as we are. Where are the new hospitals, the extra doctors & nurses, the new schools & general infrastructure to cope with all these people?
“New Zealanders find it harder to get a job with the influx from overseas. The fact is, every year we are creating a city the size of Rotorua and the country cannot handle it. Even the Prime Minister [Bill English, in a reference 2 days before the election] admits they can’t keep up with population growth.”
22 September 2017: An immigration pause – or a turning point?
6 September 2017: Updated: Reserve Bank sublets to help pay the rent
5 July 2017: Super fund explains tilting strategy
9 June 2017: Reserve Bank raises question of new debt:income loan limits
23 March 2017: Housing supply the main concern as Reserve Bank holds cashrate
30 September 2014: Super guardians pose some investment thoughts
29 September 2008: NZ Super Fund has $2 billion turnaround to $880 million loss
Attribution: Bank & Peters releases.