Adrian Orr’s stealth bazooka
Reserve Bank hikes official cash rate to 2% and plots course to 4% next year
Reserve Bank governor Adrian Orr has plotted a course to much higher interest rates, despite acknowledging the risk of a recession.
The central bank raised the official cash rate (OCR) to 2%, from 1.5%, on Wednesday in a bid to drive down inflation which is currently running at a 31-year high.
It also significantly increased its forecast of how high the OCR might rise over the next three years.
The Reserve Bank is now predicting the rate will need to climb to about 3.4% by the end of this year, peaking at 3.9% from June next year.
As the bank tends to move the OCR in increments of 25 basis points, that implies a high chance of the rate topping out at 4%.
As TDB has been warning from the beginning, the economic shockwave of Covid is here driven by supply side inflation caused by just in time global capitalism grinding to a halt.
The knock on effect of 6.9% inflation plus mortgage hikes caused by interest rates being forced up over the ocean of private debt is a fucking maelstrom of damage.
I argue we will face 10% inflation by December.
KiwiSaver accounts will diminish, mortgage rates and rents rise, food and petrol prices to continue to skyrocket as Russia’s war and China’s zero tolerance to Covid combine to create a force multiplier of risk, economic shockwaves and inflationary pressures.
Small business owners who have been alphas all their life and have grown attached to the liberty that liquid gives them are about to go belly up and that bitter resentment will feed ACT.
The poor are suffering beyond the financial fears of the middle classes, food banks are spiking 500% more demand and their overcrowded existence is ripe kindling for covid.
As Orr desperately struggles to tame the inflation beast, the housing speculation Grant and Jacinda accidentally set off that has enriched the wealthiest by a Trillion dollars risks bursting while international inflationary shockwaves destroy the ability to purchase.
Orr’s medicine is a stealth bazooka. He will increase over the next 12months an extra 4 rises till we hit 4%! That is going to destroy first home buyers and runs a real risk of mortgagee sales.
Since 2008 the central banks printed $25Trillion to fend off a global collapse, that artificially lowered the interest rate to the lowest in 5000 years of human civilisation, the unwinding of that is going to be cataclysmic.
Only Orr and Treasury seem to believe that tourists, migrant workers and international students are somehow gong to save the NZ economy in the 3rd and 4th quarter of this year.
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NZers were prewarned about buying expensive houses but FOMO seems to have got the better of some.
Many people that were stupid enough to buy a house and not consider any additional cost to serving their mortgage have no one to blame but themselves. However the banks also have a responsibility to ensure people could and still can pay down their mortgages.
NZers were prewarned about buying expensive houses but FOMO seems to have got the better of some.
Many people that were stupid enough to buy a house and not consider any additional cost to serving their mortgage have no one to blame but themselves. However the banks also have a responsibility to ensure people could and still can pay down their mortgages.
Thank God we have a party in power that rejects failure.
Too many NZers living above their means too much keeping up with the joneses in our country
I’m sure all that time, effort and money that Adrian spent reimagining the Reserve Bank as a Kauri tree (to impress fuck knows who?) will come in really handy any day now…
To consume or not to consume, that is the question. Somebody smarter than me can fiddle with the rest, but as long as we live in an economy driven by consumption, which secures the jobs that generate the incomes to purchase goods, what else can people be expected to do? Frugality, or “making do” won’t solve our problems. But securing a just settlement of the war in Ukraine might help to.
Don’t agree with you just kraut your just sour
The economists view that inflation is purely a monetary problem is not the whole story. Too much money chasing too few goods is the basis of Milton Friedman’s ideology. Economists are wrong again. Commerce always uses the cheapest and easiest resources to exploit. That means that later on the resources cost more energy to extract, process, and sell. So there is a increasing real cost to obtain the goods. As the wealth trickles upwards to the already wealthy, the rest face the reality of increasing costs as inflation. The increasing money supply does not come to the people at the bottom. The energy we obtain in food costs 10 times the energy to supply the food. The phosphate our agriculture requires is becoming an increasing real cost. A lot of the energy consumed in the world comes from ancient stored sunlight energy in the form of coal and petroleum. The cheapest supply is getting used up. So inflation is more than the money printing. It will get worse before it gets better. Who says it will get better?
Great points Paul I agree entirely. The age of cheap may be behind us.
It’s being done to reduce imported inflation – higher value dollar – thus to 2% now and pointedly stating it will go to 4% next year (so everyone gets on board).
Which is why it will not go to 10%.