RBNZ to pull back to neutral on the economy
The departing Deputy Governor of the Reserve Bank (RBNZ) thinks the central bank will gradually reduce its active support of the economy as economic conditions prove resilient.
Tuesday, December 7th 2021, 11:30AM 
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by Eric Frykberg
But Geoff Bascand says it will do so with eyes wide open in case something goes wrong.
Bascand, who leaves the bank in January after nine years, was speaking at the Financial Services Council conference.
He was commenting after the bank spent almost two years actively battling the Covid-19 crisis with an ultra low OCR and monetary creation schemes like the now discontinued LSAP and the Lending for Banks programme.
But Bascand told his audience the economy had come through the Covid-19 crisis quite strongly, with robust economic activity and full employment,
“We think we are in a good position for employment to remain strong and for wages to rise,” Bascand said.
“If that picture unfolds, the bank will continue to look to reduce the amount of support that it is providing. We should be able to ride through in more neutral settings than ones where we have been doing a lot to prop (the economy) up.”
Bascand did not specify what he was referring to, but was understood to be describing an ultra-low OCR during the pandemic.
This has been rising anyway and is forecast to go a lot higher.
In another part of his speech, Bascand suggested that governments could learn from householders in terms of saving money for a rainy day.
“The world has a lot of shocks in it ….. households ideally try to have some savings so you can get through if you lose your jobs temporarily and need to look for another one.
“It is the same story for economies as a whole, we need fiscal settings we can use if we need to.”
Bascand was referring to a need for governments to keep debt low enough so they can borrow more money in a crisis.
He said the earthquakes in Canterbury were a huge drain on private and public money, and the pandemic had the same effect.
He said it was important to restore fiscal settings in case there was another shock.
He also suggested this need would gradually increase.
“It's not urgent that we should consolidate fiscal policy right now, but if we look ahead at the next five years, then if we don't do something at some point, we will run out of room when the ageing population has a greater impact on the expenditure side of the budget.”
In other parts of his speech, Bascand said strengthening banks' capital reserves was an important part of his career.
He also said Debt to Income ratios (DTIs) were better at controlling housing inflation than Loan to Value (LVR) rations, but neither, nor both, were enough to fix the problem on their own.
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Bridges said he did not want (Governor) Orr reappointed when his five-year term expires in March 2023.
"I don't see anyone on the centre right wanting to do that," he said. "This is is a guy who ... ultimately ... has probably made things worse.
"His policy implementation has led to the housing problems; we've got the big inflation, and he's been focused on a whole bunch of other things that may or may not be important. "But these are not the job of the Reserve Bank, whether it's Māori issues, climate change and the like."
Finally a politician who is actually telling it as it is. We seem to have become too scared in this country nowadays to acknowledge and report the truth if it doesn't suit whatever ideology is the current fashion. Any credible economist in New Zealand would agree with these comments made by Simon Bridges because they are accurate.