Alan Bollard's indecision over OCR a worry to NZ INC

The case for Alan Bollard, New Zealand's Reserve Bank governor, to lower interest rates is strong and the time to do it is clearly now.

His rationale and excuses for raising them over the last few years has been to keep inflation in check but he really is swimming up the creek without even a boat when he has had to contend with out of control government spending and more to come, record oil prices, an exchange rate that is at post float highs and a crises of credit flow and lack of faith in business and the global economy.

He had raised the rate, with one explicit goal in mind and after every rate rise he told us that kiwis really needed to "end their love affair" with real estate. Almost double figure mortgage rates have finally put paid to our love affair and some sellers are finding their divorce from excess rental investments becoming more hateful by the day.

Yes, the housing market is dropping like a cheap hookers knickers but it took more than two years lag for Bollard's aim to take effect.

That is my point. The effect of his rate manipulations, up or down, take time to infiltrate their way through the market. A rate cut one Thursday morning could take more than a year to have a consequence.

The time to cut our interest rates from the current official cash rate of 8.25% is now. A couple of .75 cuts in succession are needed immediately, and then 2 more .50 cuts after that, then smaller ones if needed.

The fact that Alan Bollard is sitting on his hands over this, just shows those who know a little about economics that he really doesn't know what to do. Like a possum in the headlights he is going to move when he has to, that is, when the shite hits the fan.

His upwards movement of the official cash rate has not only affected the housing market negatively it has also put business lending out of reach of many struggling and promising new growth businesses. With high CAPEX costs our economy is simply going to fold up and go somewhere else if the status quo continues.

While Bollard's high cash rate has clearly pushed up our currency against our big trading partners, as Mr and Mrs Uridashi take advantage and invest their Yen here, it has also squeezed margins for our exporters.

While this is a risk that New Zealand exporters need to manage and only a smaller consequence in my opinion, it really shouldn't be happening if the cash rate was managed properly.

In fact, a wise move would be to abandon the official cash rate and keep the machinations of hopeless bureaucrats like Bollard out of things he doesn't understand. Let the market decide its own cash rate, it would be more efficient, more predictable for those it has a direct affect on and allow flexibility and competition for our banking institutions.

Finally, moving the cash rate too low isn't enough to rescue our economy from the current downturn. Japan tried that in the 1990s and it failed miserably. We must also have large personal and business tax cuts. These would have the dual effect of stimulating our economy while also putting the brakes on wasteful government spending, when we most need it.

The headlights are getting closer Mr Bollard, lets hope you move before our economy is run over.


Related Share Investor reading

Time for OCR intervention by Dr Cullen

Alan Bollard's indecision over OCR a worry to NZ INC
Bollard sits on his hands

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The Movement of Interest Rates, Bond Yields And Stock Prices in the United States Since 1856 by Frederick R. Macaulay
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c Share Investor 2008