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RBNZ expresses concern over state spending

 The Governor of the Reserve Bank has fired an oblique shot across the bows of the Government over state spending.

Tuesday, April 19th 2022, 10:39AM 2 Comments

by Eric Frykberg

Adrian Orr told an international audience that central banks cannot fight inflation on their own but need help from elsewhere.

This includes the requirement that Governments carefully monitor how much money they spend.

Orr was being interviewed on-line by a senior manager of the International Monetary Fund (IMF).

Anne-Marie Gulde-Wolfe is acting director of the Asia Pacific Department of the IMF and has carried out a series of interviews with heads of central banks in many countries.

Orr told Gulde-Wolfe that the Reserve Bank was dealing with an unprecedented combination of high inflation, a global health challenge, war and the dangers of climate change.

“Central banks are not going to achieve their mandates on their own,” he said.

“Those are low inflation and maximum stable employment.

“We are going to need support. Central banks are going to have to communicate very clearly about their purpose,” Orr said.

“We are going to have to be very clear with our fiscal authorities about what we are doing and how they could assist with more targeted effective fiscal policies.”

These comments are a mild version of earlier criticism that growing Government spending was boosting demand for goods and services and was inhibiting the fight against inflation. The Government has repeatedly denied this causal link.

Orr returned to this theme later.

“We have to work very closely with fiscal authorities to understand what they can do and can't do and so learn what we need to do in addition.”

He said the main part of that was to remove what is left of the monetary stimulus which was begun at the start of the Covid crisis. He also had to retain an anti-inflationary bias in what his bank did.   That involved pressing on with inflation fighting goals, by stopping Quantitative Easing and raising base interest rates.

He repeated his view that this could risk an economic slowdown but not doing so would run the danger of inflation getting away.

In his interview, Orr re-asserted the long standing position that house prices per se are not part of the RBNZ remit. This was in response to concerns that monetary stimulation had helped push house prices to levels that were unaffordable for many people.

But he said the bank's recent monetary actions had helped push house prices from an unsustainable level back in the direction of a sustainable level.

Elsewhere, Orr called for more long term investment globally in the sort of infrastructure that would provide an environmentally sustainable future. He said this should not be trumped by short term economic needs.

Tags: RBNZ

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Comments from our readers

On 20 April 2022 at 8:55 pm Winka said:
Crikey,........
Inflation only exists as a word,...... not in reality

Here is the 'short' explanation.....
M3 2, & 1 are part of the culprit.
Money supply.
And...Money (currency) 'velocity.'

For every dollar in circulation in NZ, there is a thing called 'purchasing power' .
When our taxes are collected, and paid to the IMF, our government requests loans back of those funds for items such as Christchurch rebuilds, or more recently, covid assistance.
When those funds arrive, the government issues government BONDS which are in turn purchased via the NZ Reserve Bank, and they then enter our system via our trading banks as our NZ currency.
That is why they are called bank 'bills'.....they are a 'bill' owed to the IMF

So, when a few 'billion' dollars are 'injected' into our NZ monetary system this way, the effect is a 'depreciation' of our NZ currency.
We need to carry an increased amount of our dollar currency in our pockets to buy our goods & services, because our dollar-value has been depreciated (watered down) by the flood of extra dollars added this way.

So houses do not 'inflate' in value...........you simply need more of our dollar-currency to buy those houses.
to be more accurate, a house value 'depreciates' annually, and that is a tool your accountant (tax agent) applies to create a tax write-off (tax deduction).......quite legal.
The thing that costs more is actually the land your depreciating house is built on.

Robert Muldoon (in 1984) made a statement to our nation and it said, "I am going to depreciate our NZ dollar currency at the rate of 1% per Month that year (1984)."
(Google 'fact-check' it...don't just take my word)
That is what most people heard him say, however, a few of us heard those words as "I am going to create a 12% INFLATION rate during the following 12 months."

Another one you can fact check (Google should suffice again) is........At a public meeting in Hamilton in 1984 as I recall, our own Dr Don Brash clarified that they had removed houses and land (land includes farms) from our CPI (Consumer Price Index), because they could act as visionaries and foresee the future planned house-price rises as people refer to it.
If houses and land had been left in the CPI our NZ Reserve Bank would have broken the law (the Reserve Bank Act), which clearly still states that they must not allow the 'inflation' rate to rise above 3% p.a. in 2 consecutive quarters.

Maybe because it was so many decades ago that the Reserve Bank Act was set, that they have forgotten it, and subsequently 'forgotten' to apply an Act, like is commonly applied to mere 'peasants?'

Y'see....all this Corporate Media hoo-haa, and attempts at 'surprise' that we have suddenly, and 'unexpectedly' been cursed with huge inflation 'that must have come from Mars' is not being portrayed correctly.

So many BILLIONS of NZ currency has been printed and subsequently injected into our system during the last 2 or 3 years, that the obvious result is 'depreciated NZ currency (inflation), and surely most people would realise that NZ is not an alone-culprit.......this is a world-wide phenomenon.
And it has got quite out of hand so we shall see the demolishing of house prices.....as I have put in print prior to this.
On 21 April 2022 at 3:33 pm Amused said:
Good to see the Reserve Bank finally acknowledging state spending as a cause of inflation.

The ACT Party stated today that under this current Government the number of public servants has exploded between 2017 and 2021. Labour has added 13,845 full-time equivalent workers at an average salary of $87,600 over that period. That's an extra $1.21 billion in wages alone.

These workers don't include teachers, police officers, nurses, or any front-line workers. They're administrators who make work for themselves competing with the private sector or dream up new bureaucracy to make life harder for workers.

To quote another contributor "The hardest part of bureaucratic work is producing the data to make it appear as if you and the ministry are engaged in meaningful work. The biggest perk is the zero accountability that is extended throughout entire ministries for major stuff ups e.g. the changes made by MBIE to the CCCFA Act last year".

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ANZ 5.54 5.15 5.85 6.15
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HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
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HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
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Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
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Westpac 5.54 5.09 5.79 6.09
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Median 5.45 4.55 5.25 5.52

Last updated: 16 May 2022 9:03am

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