As the inflation monster continues to grow and rob your savings, the Reserve Bank is starting to think about how they are going to slay the beast they helped to create. They ratcheted up the OCR by 50 basis points yesterday to 2 per cent. We are certainly going to see who has been swimming with no undies.
Interest rates are set to rise higher and sooner than previously forecast as the Reserve Bank goes on the offensive against inflation.
The Reserve Bank today increased the Official Cash Rate (OCR) by 50 basis points to 2 per cent and delivered a hawkish Monetary Policy Statement pointing to much higher rates ahead as it chases down inflation.
The Monetary Policy Committee said it sees the cash rate rising to at least 3.25 per cent this year and it was “resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 per cent target range.”
Excuse me? “Resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 per cent target range”? Inflation is already well outside the level of between 1% and 3% that the Reserve Bank is statutorily obligated to keep . Both the Government and the Reserve Bank are projecting inflation will be higher than the top of the allowable band for at least four years.
Apparently, it is perfectly alright for a Finance Minister and a Reserve Bank Governor to put their signatures to an “agreed” course of action, then wilfully and deliberately ignore it. No one in the media howls about it, no one in opposition dares raise it; yet here we are in breach of statutory obligations and not only is no one resigning, no one is calling for those resignations either!
“A larger and earlier increase in the OCR reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment,” the Committee said.
In new forecasts, it indicated the cash rate may now peak at 3.9 per cent in June 2023 – as opposed to its previous forecast at 3.4 by mid-2024.
The 50 basis point hike was widely anticipated but the forecasts and tone of the statement suggest an increasingly aggressive approach.
“We thought the RBNZ would come out swinging, but today’s statement was still more hawkish than expected,” said ASB senior economist Mike Jones.
“This pace and degree of tightening will have consequences for house prices, spending and GDP growth such that we don’t think the OCR will need to be lifted all the way to the 3.95 per cent peak the RBNZ’s updated projections imply.”
NZ Herald
Which is nice analyst-speak for saying a hard recession, or possibly a depression is on the cards.
The consequences they dare not speak of are: higher interest rates, coupled with crashing house prices, to which a credit crunch is added, causing spending to dry up, and the economy actually contracting not growing, leading to much higher unemployment, with a corresponding up tick in crime and other social cohesion measures.
When house prices crash and interest rates rise, what you see next is banks calling up people at the margins of lending ratios asking for them to correct their loan to value ratios. That means coughing up cold hard cash to the bank. Cold hard cash the contracting economy dried up. What comes next is something we haven’t seen since the ’80s…nasty mortgagee sales.
We are about to find out who has been swimming with no undies on, and the sight will not be pretty.