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Opinion piece from Interest.co.nz
By Bernard Hickey
Reserve Bank Governor Alan Bollard railed yesterday morning against a pesky increase in longer term wholesale interest rates, saying they were “unwarranted and inconsistent with the monetary policy outlook.” His obvious but unstated concern was that the associated rise in mortgage rates might derail the economic recovery he was banking on for later this year.
“As indicated in our March Statement, we are projecting interest rates to remain at relatively low levels for an extended period,” he added. He appeared to be directing the markets to move their rates into line with his forecasts before someone gets sent to the naughty chair.
I’m being a bit rude, but that appeared to be the tone of the statement. It was an exasperated and almost plaintive statement. And a tad pointless. There is no naughty chair for long term interest rates.
His only obvious tool to move interest rates is the Official Cash Rate and that can only influence short term rates directly. His comments and the direction of the OCR can influence sentiment in the long term, but that is as much because of the Reserve Bank’s forecasts for the economy rather than the OCR itself. He has another nuclear powered tool he hasn’t used before that I’ll talk about later.
Supply and demand
The sharp jump in wholesale interest rates started on March 12 because Bollard, rightly, indicated he couldn’t cut the OCR too much further because international investors wouldn’t let us. Back then he also pointed out the Reserve Bank had forecast a relatively quick economic rebound in late 2009 and early 2010 that would push GDP growth over 4%. I think the Reserve Bank is being too optimistic for economic growth, but the markets took the bank at its word and priced in the risks by starting to put up longer term wholesale rates, and therefore longer term mortgage rates.
Read more...
Cheers
Marc
By Bernard Hickey
Reserve Bank Governor Alan Bollard railed yesterday morning against a pesky increase in longer term wholesale interest rates, saying they were “unwarranted and inconsistent with the monetary policy outlook.” His obvious but unstated concern was that the associated rise in mortgage rates might derail the economic recovery he was banking on for later this year.
“As indicated in our March Statement, we are projecting interest rates to remain at relatively low levels for an extended period,” he added. He appeared to be directing the markets to move their rates into line with his forecasts before someone gets sent to the naughty chair.
I’m being a bit rude, but that appeared to be the tone of the statement. It was an exasperated and almost plaintive statement. And a tad pointless. There is no naughty chair for long term interest rates.
His only obvious tool to move interest rates is the Official Cash Rate and that can only influence short term rates directly. His comments and the direction of the OCR can influence sentiment in the long term, but that is as much because of the Reserve Bank’s forecasts for the economy rather than the OCR itself. He has another nuclear powered tool he hasn’t used before that I’ll talk about later.
Supply and demand
The sharp jump in wholesale interest rates started on March 12 because Bollard, rightly, indicated he couldn’t cut the OCR too much further because international investors wouldn’t let us. Back then he also pointed out the Reserve Bank had forecast a relatively quick economic rebound in late 2009 and early 2010 that would push GDP growth over 4%. I think the Reserve Bank is being too optimistic for economic growth, but the markets took the bank at its word and priced in the risks by starting to put up longer term wholesale rates, and therefore longer term mortgage rates.
Read more...
Cheers
Marc
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