What the Reserve Bank decision told you today is how much trouble our economy is in. If you're in business, you already know this and you don't need me to tell you this.
I was talking to a couple of CEOs yesterday. They were telling me they cannot see the green shoots - we've been waiting. We were told - survive til '25, we're halfway through and we're still stuffed.
Well, let me tell you what we got today. We got a 25 basis point cut. We needed 50 percent because that OCR is still too high. It's now sitting at 3.25 percent.
It's probably actively still dampening our economic growth because I think the consensus is that 3 is neutral, and we're not there yet.
But they could not give us a bigger cut today.
And even they must realize how much damage they're doing, because they themselves have admitted that the economy is even more stuffed than they thought it was as recently as February, when they last met.
Back in February, they predicted that in the first quarter of this year, we would have seen growth of 0.6 percent. They have revised that down to 0.4. This quarter that we're in right now, they forecast that we would be growing at 0.6 percent. They just halved that to 0.3 percent.
Next quarter, they thought would be 0.5 percent. They've taken that down to 0.2 percent. That's not good. That's bad.
And now, why couldn't they give us a bigger cut to help us along? Because they might set off inflation again if they do.
We just saw a rise in inflation the other day, and there is potential for it to keep on creeping up.
We've got dairy prices going up, we've got electricity prices going up, we've got rates going up - I could go on and on and on.
The Budget that we just had last week is not super deflationary, is it?
And their job at the Reserve Bank, remember, is not to help the economy grow. That is not their job. Their job is to contain inflation, and it's kind of borderline, and they can't take any chances there.
Could we have a touch of the old stagflation back? No growth, prices going up? Feels a bit like that's a risk at the moment, isn't it?
Now, I hope not, but 'I hope' is not a strategy.
And yet, what else have we got left when even the Reserve Bank can't get out of the economy's way?
Heather du Plessis-Allan is a journalist and commentator who hosts Newstalk ZB's Drive show HERE - where this article was sourced.
5 comments:
So Heather wants lower dairy prices, does she? It is only proceeds from primary industry's sales that will get New Zealand out of the crap
This is a timely piece, Heather. The Reserve Bank’s move might buy us a little breathing room, but the deeper issue—why investment is so anaemic in New Zealand—goes well beyond interest rates. The core problem, I believe, is regulatory unpredictability. Businesses aren’t holding back because money is too expensive. They’re holding back because the rules keep shifting under their feet.
From Lucas to North to de Soto, the world's top economists have long warned about this. When entrepreneurs and investors can’t be sure what tomorrow’s compliance regime, planning restrictions, or government priorities will be, they simply stop building, hiring, and innovating. We’re seeing that now: capital is hesitant, productivity is flatlining, and confidence is quietly evaporating.
Until we restore clarity, constraint, and coherence in our regulatory frameworks, no amount of monetary tinkering will pull us into prosperity. We need laws that are knowable, institutions that are neutral, and policies that are built to last—not remixed after every political storm.
Thanks again for drawing attention to the economic drift. It’s not just a technical issue. It’s about trust. You can see further thoughts of mine here: https://zoranrakovic.substack.com/
Zoran, you forgot to mention the toxic nature of NZ and it pre-colonial transition presently underway.
This is what happens with low rates and a weak dollar;
Debt skyrockets, speculative bubbles inflate, wages stagnate, savers are punished and the middle class is hollowed out.
Higher rates create a stronger dollar, economic expansion/growth, and a thriving middle class. The economy grows best when Interest rates are higher and the dollar is strong.
Don't let the monetary priests of Babylon (central banks) tell you otherwise. Higher rates and a stronger dollar are not enemies of growth; they are the guardians of it.
Hello, this is a small place to extensively comment. Perhaps you will find more answers here: https://zoranrakovic.substack.com/p/regulatory-uncertainty-new-zealand-investment-decline
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