Recently Graeme Wheeler, the Governor of the New Zealand Reserve Bank (NZRB) increased the official cash rate again, to 3.5%. For months he has been talking up this process and as a result the New Zealand dollar has appreciated from $.79 US to $.87. This is great if you are off overseas on holiday, but if you are in the productive sector, have a business overdraft, or if you have a mortgage, you could be forgiven for being a little peeved.
In my opinion, the system doesn’t work as it should. Auckland house prices continue to push ahead because of demand and the Christchurch rebuild is pumping money into their economy. The New Zealand dollar is now one of the most traded currencies in the world and our main exporters are hurting big time. We are also the target for the carry trade (investing in New Zealand for higher returns) and the NZRB seems to use information that is either outdated, or completely corrupted by data out of Auckland and Christchurch. How we ever get the message to these guys in the ivory towers that the provinces aren’t suffering from inflation, is beyond me. Inflation infers that wages are increasing or people expect asset prices to rise in the future. With profit warnings from all the major retailers, it is clear that people aren’t spending. This, along with dairy farmers putting their chequebooks away due to the bleak dairy forecast, makes me wonder if the NZRB is completely out of touch with the real world.
For what it’s worth, I think Graeme Wheeler should either get in his car and come and talk to people in the provinces, or find a real job!
John Barber