The Green Party has recently released information that the Reserve Bank has being maintaining interest rates at an excessively high rate. This information- obtained from Reserve Bank documents released under the Official Information Act – indicates that inflation predictions have been consistently overestimated for months.
These documents show that since 2011, interest rates have been hovering significantly lower than the mid-point of its target band, which is used to calculate the Official Cash Rate (OCR).
Russel Norman, Green Party Leader has gone on the record stating: “They said it [inflation] would be 2 per cent, and it was 0.9 per cent… So they just got it wrong, and quite radically wrong.”
He then went on to say that this “poor forecasting” is at least partially responsible for the nations slow recovery after the recession. Considering the reliance on a low kiwi dollar for our numerous exports, and the degree to which our economy is reliant on trade this seems to be likely. Additionally, b
Norman then went on to describe the other adverse impacts of these miscalculations – “So they just got it wrong, and quite radically wrong.”
However, whilst there can be no doubt that the Reserve Bank indeed got it wrong, there is the question of whether it could be avoided. Within the Reserve Banks own report comparisons are drawn with major banks both nationally and globally, who all had similarly overly high estimates.
Furthermore, the Greens have drawn criticisms from the NZEIR’s analysts who claim that the Reserve Bank has been entirely transparent, and all measures taken have been entirely reasonable.
One of the NZEIR’s forecasters, Shamubeel Eaqub has gone on the record stating “You’re never going to get any forecast perfectly right.” Before going on to imply that if interest rates were lowered correctly the New Zealand economy would actually be harmed, with house prices further skyrocketing.
This directly opposes Russel Norman’s recent statements, whereby he has been proclaiming that the OCR was a “stupid” and crude tool for manipulating housing prices, and that it shouldn’t be used for this reason alone- as the Green Party has been proclaiming for years.
Interestingly, both Norman and Euqub agree that there would be some benefits in having a wider degree of input into OCR decisions (Currently it is Reserve Bank Governor Graeme Wheeler’s decision). However, Euqub does stipulate that this is no guarantee of success in a relatively uncertain financial market.
Regardless of whether they were avoidable or not, New Zealanders have been ripped off by these excessively high interest rates for the last few years. From purchases of NZ made products, to jobs to the amount you pay extra on your mortgage -most New Zealanders have been affected. For this reason, how we determine the OCR should be a publicly debated issue- and if the Greens have their way it could soon be.
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