Did the Reserve Bank massage its OCR forecasts to help Labour keep power? (we’ve found evidence pointing to it)

• Rob MacCulloch writes – 

Last year, in the lead up to the national election, Governor Orr said in May 2023 that he was “very confident” there would not be further interest rate hikes, stating the Reserve Bank had done enough in terms of rate rises.

He was interviewed by Mike Hosking on Newstalk ZB on the subject of his rampant confidence in the economy – as this was a highly sensitive matter in Election Year. Hosking also spoke at the same time to former RBNZ Governor, Don Brash, who expressed severe doubts, saying, “[But] the governor indicated it [the OCR] would not be going higher, and that was a surprise both for the market and me personally.”

National’s governing for (crony) capitalists – not capitalism

• Chris Trotter writes –

WHY IS THE NATIONAL PARTY doing so much for landlords, property developers, trucking, and construction companies, and so little for everybody who isn’t already pretty well-off?

It’s as if protecting landlords’ investments and building apartments and roads now constitute the whole of National’s policy objectives. Even their most faithful supporters in the farming community are being neglected by National’s present crop of leaders. What has happened to the National Party?

Have the new leaders forgotten the parlous state of the country’s finances?

While National, ACT and NZ First  are scrambling over the formation of a new government, their  leaders appear to have forgotten the  parlous state  of  the country’s finances and the urgent need to get  them  back into  shape.

Political journalists were  so engrossed with  the eloquence of the outgoing Finance Minister that  the public were left unaware of what one critic  described  as  the “blundering”.

BRIAN EASTON: Does the inflation target have to shift?

There is a view that the world economy is entering a period of higher inflation and higher nominal interest rates, but who knows? Presumably New Zealand has to follow.

• Brian Easton writes –

If you know everything about the inflation process, and are totally committed to central banks targeting inflation at 2 percent p.a., then there is no need to read this column. I am afraid its writer is not nearly as committed as you. Indeed, all this column offers is some guidance about an evolving discussion among overseas economists which is challenging past certainties.

Those certainties were that, some exceptional circumstances aside, inflation was a monetary phenomenon only, and that central banks should be able to reduce it to any desired level – usually set as consumer prices rising about 2 percent p.a. – although their actions would cause some short-term pain. The details of the analysis – some of which are often quite subtle – are rarely mentioned.

Hipkins has enjoyed a bounce in the polls, but now economic conditions are biting into living standards of the average Kiwi

Just as economic conditions  are biting into the living standards of the  average New Zealander, so are they darkening for the Labour government.

For Chris Hipkins, who has  given Labour  a  bounce in the polls, the  charmed  run he has enjoyed could be coming to a  brutal end.

He may  be pinning  his  hopes on  his Finance  Minister, Grant Robertson, working a miracle in  a  budget  that  will produce a glow to  warm the  average taxpayer. The problem  for Robertson, though,  is that if  he spends up large, as he did through the Covid pandemic, he  may  just prolong the agony inflicted by high prices, because  the Reserve Bank  will have to sustain interest  rates at a peak as it tries,  in Governor Adrian Orr’s phrase, to “cool the jets”.

In  any  case, the Prime Minister  contends prices are  beginning to stabilise.

That doesn’t wash  with the  average householder who has just seen — and felt — the impact of food prices rising by 12.1%.

The April 1 boost to  benefits, large as it was, was supposed to  offset rising costs but failed to  do so.

Inflation is not slowing down yet, so can Hipkins take a tip from Prebble and risk a snap election?

Inflation is showing little sign of slowing down, posing  a  problem for freshly minted PM Chris Hipkins.

According to that  old campaigner Richard Prebble,  Hipkins should call a snap election. If he  waits till October, he risks being swept away.

The dilemma for the new leader is that fighting an election while inflation is raging is  no fun at all.  It underlines the extent  of  Labour’s failure to implement successful economic policies.

Statistics NZ reported  the CPI rose 7.2% in the latest quarter.  It follows months of high inflation where prices frequently rose faster than at any time since the early 1990s.

BRYCE EDWARDS: Will the Govt act on mega bank profits and reform the banking sector?

Dr Bryce Edwards writes – 

The corporate retail banks are making mega profits on the back of Government policies and indirect subsidies of recent years. As a result, there are calls from across almost the whole political spectrum for greater regulation of the banking sector, including windfall taxes. But will outrage turn into action?

Prime Minister Jacinda Ardern led the charge against the banks this week, warning the likes of ANZ – which announced recently that its profits were up 20 per cent to a record $2.3b – that they are at risk of losing their “social license” to operate here.

The Prime Minister sounded tough, but she was also quick to admit that she has no intention of taking any action or changing the rules. The Finance Minister Grant Robertson was also fast to rule out any reforms or further investigations.

Critics have said that Ardern’s plea for the banks to have “self-reflection” is wishful thinking in the extreme. The Green Party’s finance spokesperson, Julie Ann Genter, put forward this analogy: “Expecting banks… to put people ahead of profit would be a bit like putting the fox in charge of the hen house.”

The PM has basked in the glow of approving publicity overseas – but the dollar’s dive should bring her back to earth

Prime Minister Jacinda  Ardern  has won lots of favourable publicity, while attending  the  Queen’s funeral  in London and the  UN  General   Assembly  in  New York.

It was  a  sombre  mission  in  London,  less  so  but  no  less  tiring in  New  York  (although the nuclear threat from Russia was sobering).

On  both  occasions, Ardern has represented  the country so  outstandingly  that  New  Zealanders  for  a week  or  two  might have  overlooked  how   poorly   the government  has  been performing  at  home.

Indeed,  one  commentator – Matthew  Hooton  in  the  NZ  Herald –  suggested that if  NZ  became  a  republic  he  would back  Jacinda  Ardern  for president.

Nobody,  he says, better  personifies  contemporary  New  Zealand globally and  in  national celebration or  grief.

“Considerable uncertainty” clouds the outlook as Robertson prepares to present 2022 Budget

Is  the  NZ  economy heading for  a  hard  landing?  As  the  country  awaits  the  presentation of Budget 2022, the omens  are not  good.

The ANZ Bank, in its  latest quarterly economic  forecast,  says  many  commentators   are talking  about the risks of  a  recession. It’s  a valid concern,  as  it is  clear  that  the  impact of  hikes in the  official cash rate (OCR)  has  already reverberated through the  housing  market  through  higher  mortgage  rates.  The  bank’s  economists  say this adds an extra layer of  concern  over  and  above fears  about the  cost  of  living  and  sustainability of  asset  prices  (via  KiwiSaver balances  and the  like).

“However  it is  imperative that  the  Reserve  Bank gets  on top of  inflation quickly. Going hard should, in theory, lessen   the  need to  hike by  more in total and that has been a  key RBNZ message.

“ Raising  rates  aggressively   while  consumer  confidence  is  around record  lows and  housing  retreating  might seem counter-intuitive,  but  the policy  choice  is  between some  pain now  or  probably  more  pain  later. Indeed  not  hiking aggressively now  would  itself be risky.

“If  bond  market  participants  sense  that  central banks are going soft on containing  inflation, long-term interest  rates  are  likely  to  rise  even more  sharply  over time  as investors  seek  inflation compensation. This  is what happened  in the  1980’s  and it is  crucial that  this  is  avoided this  time  around so  as to avoid a  deep  and prolonged  period  of  stagflation.”

RBNZ on the back foot as inflation rises – but consumers are struggling on a sticky wicket, too, as food costs soar

Reserve Bank “not in a  good  place”, admits  governor.   This  was  the  headline  Radio NZ  News  ran over  a  report of  RBNZ governor Adrian  Orr  speaking  to an International Monetary Fund  seminar.

He  might have  added  that the average  Kiwi consumer  is  “not  in  a  good  place”, either,   when doing the  daily  shopping,  with  food  costs soaring  and  inflation  rising at  a faster  rate  than  it  has  for nearly  30  years.

But isn’t  it  Orr’s  job to  keep  inflation  under  control – or can he pass the buck (as it shrinks in value) to the Monetary Policy Committee?

And whatever happened to the inflation target?

Orr  does  concede that  the  RBNZ  was caught on the back foot,  but argues  that was the same for many other central banks, as a  result of supply chain shocks and the Russian invasion of Ukraine, which had exacerbated inflation pressures.

Moreover, he  contends the RBNZ had been “reasonably aggressive” in ending its bond-buying programme last year and moving to lift the official cash rate,  and is also balancing risks.