Government ministers are adamant New Zealand’s economic fundamentals are solid, unemployment is at a record low, growth is faster than in Australia, and the surplus in the government accounts and low debt present further opportunities to strengthen the economy.
Yet, across the road from the Beehive, the view from the Reserve Bank seems very different.
In August the RBNZ slashed the official cash rate to 1% and talked of the prospect of another rate cut in November — on the basis a lower official cash rate is necessary to continue to meet its employment and inflation objectives.
The bank pointed to low business confidence and dampened business investment in 2018 which had remained weak in mid-2019. If sentiment remained low, growth might not increase, it said, an anticipated over the medium term.
The RBNZ also contends the risks for the NZ economy are so great that in in the interests of financial stability, core capital ratios for the country’s big trading banks have to be raised.
Is it any surprise the contrasting views of government ministers and those of the Reserve Bank have fostered uncertainty which helps to push down business confidence?
Instead of stimulating new investment, the climate of uncertainty has seen investment plans put on hold.
Rather than creating the certainty and stability which would promote the investment needed to put the economy on the road to rising growth and higher prosperity, government ministers on one side of the road, and the RBNZ on the other are presenting such different versions on the state of the economy they have succeeded in putting business on to the defensive — and they have made consumers cautious.
Moreover, if the banks have to hold more capital, won’t there be less to invest?
While Finance Minister Grant Robertson is telling anyone listening that under his stewardship NZ is growing faster than Australia, the deputy governor of the Reserve Bank, Geoff Bascand, has been spreading the message across the ditch that the RBNZ has to impose more onerous capital requirements on trading banks in NZ because there is greater level of economic risk here than in Australia.
Which is odd, given the banks under the gun in NZ are those which dominate the Australian economy.
Bascand told his Sydney audience
“ … the risks globally are high, and NZ is particularly vulnerable to external events. Our economy is quite small – less than a fifth of the size of the Australian economy, and just like Australia, NZ is heavily reliant on commodity exports and is very open to financial capital flows.
“Commodity price movements in world markets determine the value of our key exports, as well as the price we pay for our imports, particularly those that are fuel-related. Monetary policy moves by foreign central banks may generate unfavourable fluctuations in our exchange rates”.
He argued the RBNZ set capital requirements
“ … according to the NZ specific risk environment— but we also acknowledge how we ‘stack up’ internationally, and why we may need a more capitalised banking system than those in other countries”.
So despite NZ’s “solid” economic fundamentals, and a growth rate higher than Australia, (as ministers tell us) the RBNZ is convinced the “specific” risk environment is such that it is being forced into laying down far more onerous capital requirements than the Australian authorities require of the same trading banks.
Point of Order thinks it’s no wonder NZ business finds it hard to get a fix on the direction the economy is heading, when the country’s political and economic masters are looking at it, apparently through very different lens.
He argued the RBNZ set capital requirements “according to the NZ specific risk environment— but we also acknowledge how we ‘stack up’ internationally, and why we may need a more capitalised banking system than those in other countries”.
So despite NZ’s “solid” economic fundamentals, and a growth rate higher than Australia, (as ministers tells us) the RBNZ is convinced the “specific” risk environment is such that it is being forced into laying down far more onerous capital requirements than the Australian authorities require of the same trading banks.
Point of Order thinks it’s no wonder NZ business finds it hard to get a fix on the direction the economy is heading, when the country’s political and economc masters are looking at it, apparently through very different lens.
I think there is a lot of creative accounting going on with this government. Despite the rhetoric about the economy from the likes of Robertson many things do not add up. Unemployment at a record low for example, yet there are 12,000 more on the dole since the COL took office. How can this be? Why aren’t MSM media asking these questions?
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