Saturday, March 15, 2014

Frank Newman: End of low interest rates, the rise of iwi, and the floating of Genesis


As expected, the Governor of the Reserve Bank has increased interested rates by 0.25% and confirmed the era of historic low interest rates is coming to an end. He also reaffirmed the now commonly held view that interest rates will rise 2% over the next two years.

That sends a very clear message to households and property investors. When planning their finances they need to assume mortgage interest rates will very soon be around 7.5% to 8%. Fortunately this should come as no surprise to Property Plus readers and many would (should) have factored this into their calculations already or changed the mix of their loans to longer term fixed rates.

Let’s not lose sight of the fact that the Reserve Bank uses interest rates to control the economy in much the same way a jockey would manipulate the reigns of a feisty horse. When the economy was booming in 2007, the Official Cash Rate (OCR) was 8.25%. As the global economies tanked following the global economic crisis, the OCR was lowered very quickly from 8.25% in June 2008 to 2.5% in April 2009. That helped prop up business and households confidence in the face of a slower economy and higher unemployment.

Now that the economic crisis has passed, the Reserve Bank is again reigning in the economy to prevent galloping inflation and an investment (housing) bubble that could only end badly.

There is always some argument about the degree to which the Reserve Bank should intervene and what devices it should use to manage then economy. However, on the whole, the Reserve Bank appears to be largely getting it right. New Zealand has been one of the few countries without the benefit of a developed oil and minerals sector to come through the global financial crisis unscathed.

Unfortunately the instruments used by the Reserve Bank are macroeconomic - they look at the economy as a whole. Unfortunately that means provincial economies like Northland that have not yet recovered to 2007 levels get wacked with restrictive measures intended to cool the big cities. We are in effect collateral damage.

That makes it more imperative for locals to find solutions to local problems. Industry and jobs should be the focus for our region. Most of our political leaders say they get the message, but the reality is they don’t get it enough to give it the priority required. Too much effort is wasted on things that don’t really matter, and on things that will actually make business more difficult or more costly.

NRC and iwi

A good case in point is the Northland Regional Council’s Draft Annual Plan which is about to open for public comment.

A press release by the NRC sys, Cr Shepherd says the regional council is also keen to foster stronger ties with tangata whenua and is setting up the Te Taitokerau Regional Maori Advisory Committee in a bid to improve Maori representation. "A working party will work with Maori to establish the terms of reference and membership for this important committee."

It seems the NRC is going to go down the same controversial path of the Auckland Council, which has increased costs to ratepayers and added a new raft of compliance costs. It’s time the NRC clearly explained the grounds on which racial privileges are being granted and what impact this will have on compliance costs and economic development.

The press release said nothing about the economic imperatives facing our region!

Here’s your chance to let your NRC councillors know your thoughts. If you say nothing, you only have yourself to blame when your representatives pass silly laws. If you speak your mind and they still make silly laws, then you can quite rightly hold them to account.

Genesis

The Government has released details of the Genesis Energy float. Here’s a quick summary of the key points:

·        The issue price has yet to be determined but will be between $1.35 and $1.65. The final price will be announced on 28 March.
·        Kiwis who buy shares in the issue and hold for a year will receive one bonus share for every 15 shares held (subject to a 2000 maximum).
·        The shares will list on the NZX on 17 April.
·       Prospective price to earnings ratio: 14.3x to 17.3x (depending on the issue price).
·       Cash dividend yield: 9.7% to 11.9% (depending on the issue price).
·       First dividend expected in October.

Information about the float may be found at www.governmentshareoffers.govt.nz.

6 comments:

Barry said...

I think the NRC is talking about some more ugly and offensive racial discrimination in favour of part-maoris from an NZ government.

Jigsaw said...

If you live in the area you MUST do something. In the Waikato Regional Council area the councillors voted to exclude the ratepayers from any decisions on Maori representation -a councillor said 'if we let the ratepayers vote then they will disagree so lets not let them vote on the matter!' True.

Chris Bird said...

I was talking to some business people in Manawatu last week. They were concerned about the rise in the official cash rate as most of the provinces, not only Northland are still suffering from the global downturn. It is only Auckland and Christchurch that are in real growth mode, and the provunces are suffering from lack of investment and opportunities for growth so the rate rise does nothing to grow these areas.

Don said...

Wow, Jigsaw's comment worries me lots, so elected councillors think the we voters, who put them in office, should not count on the matter of (unelected) Maori representation. Every local voter take note, remember, & do everything in your power to block this undemocratic decision. Then also vote that councillor out of office at next election.

Anonymous said...

After reading the statements relating to Maori preference and the NRC on the councils website it is glaringly apparent that the council will be paying lip service to any consideration of other ethnicitys in their operational management of Northland.
It needs the local government legislation to be overhauled and provision made to enact that all councils be mandated to consider all races equally.
The NRC current website is promoting racism.

Anonymous said...

Higher interest rates (much higher than a lot of our trading partners)are obviously designed to keep the price of imports down and escalate the price of our exports - I think they have the cart before the horse - we need to encourage exporters - not importers! We should be earning overseas funds by exporting, not with the capital inflow because of our interest rates.