Interest Rates

[Wayne]

How do RBNZ actually make money?

[speights boy]

The Reserve Bank reported a net profit of $308 million in the 12 months ended June 30 from $118 million a year earlier, on gains in the value of its foreign exchange holdings and financial instruments.

The board recommended a dividend payment of $175 million to the government, up from $160 million in 2012. The bank typically distributes gains in foreign exchange rates only when they've been realised.

As at June 30, the Reserve Bank had lifted its foreign exchange intervention capacity to $9.1 billion from $8.92 billion a year earlier.
That was down to $9.04 billion as at July 31, and the bank will release figures for currency flows in August later today.

[Perry]

I could well be wrong, too.

Leaving aside that the context was private banks and their employment of
econo-mists, what would the gummint do if it considered it wasn't getting
lots of stealth tax revenue from the RBNZ? I.e. despite all the huff, puff
and paper niceties, just how independent is the RBNZ and the gummint,
really, when the, ahhhh, tax aka dividends are considered?

Just why should a government dept. make a profit?

[Perry]

How do RBNZ actually make money?

It also makes money from what it calls 'seigniorage.'
From what I can tell, that decodes to interest.

[speights boy]

Just why should a government dept. make a profit?

An often asked question.
However I assume the RBNZ and Banks were the topic.

[Perry]

Are you suggesting that the RBNZ is not a gummint department in all but name?
Depending on what degree of its independence is real, would one of it's main
priorities be to make a profit, as is required by other blatant SOEs stealth taxers?

[speights boy]

Although owned by the Govt it is not a Govt department.
It is primarily a policy organisation.

[Perry]

That's on the face of it. A policy organisation that pays millions in stealth
taxes to the gummint is a lot more than 'primarily' a policy organisation.
It's a revenue generating organisation for the gummint, given the figures.

[speights boy]

Well, your good friends in the Labour party will probably change all that if elected.

Just as they plan to strip the power generators of their earning ability, and therefore severely reduce dividends to the Govt.
The fact that all these "stealth taxes" will be replaced by many more, and far more onerous non stealthy taxes will keep you happy perhaps.

Meanwhile, I am very pleased the RBNZ is smart enough to make a profit .
Last post from me, re your RBNZ being a 'stealth tax generating machine'.

[Keys]

How do RBNZ actually make money?

They print it.

[Perry]

Well, your good friends in the Labour party will probably change all that if elected.

I doubt I have any friends in the Labour Party. Even less
in any prospective Watermelons/Commissariat coalition.
Toasted or otherwise.

gNats or gNats lite:

More of the same - only different. Largesse to the left
or largesse to the right. Tax and spend or borrow and
spend. NZ politics is more a charade than any form of
fiduciary governance.

The difference either lot would make to interest rates
is a moot point. As observed earlier: frying pan or fire.

[Davo36]

Perry, David Cunliffe has publicly stated that he will change the Reserve Bank Act.

The RBNZ just does what it's set up to do which is stop bubbles from happening, and stop crashes from happening i.e. iron out the kinks.

So there's an act of parliament about this, with a policy statement which gets updated every now and then to codify/modify what the government wants.

But of course if the RBNZ moves in directions that the government doesn't like, they can just change the policy agreement, the act, or both.

So, of course this means it's not really independent at all.

[speights boy]

Prepare for the Spring specials for LVR 80% and under investors/home owners, as banks will fight over each other for us!

You were right re the spring specials.
ASB's 6 month rate increases by 60 basis points.
They have also raised their Term Deposit rates.

ASB mortgage rate changes

ASB has withdrawn its 'special' 4.75% six month fixed mortgage rate that applied for borrowers with at least 20% equity.
Their standard 5.35% rate now applies to this term, effectively raising that 6 month rate by 60 bps.

[elguapo]

Interesting, so as property investing is also a commercial business, does this mean we are exempt from the LVR restrictions ?

Do you think a bank is going to lend more than 80% of asset base to a company unless it's at much higher rates?

[speights boy]

But of course if the RBNZ moves in directions that the government doesn't like, they can just change the policy agreement, the act, or both.
So, of course this means it's not really independent at all.

Key seems to be saying to home builders that they won't do anything.
"Don't complain to me, complain to the bank"
Be interesting to see Labour's policy to be announced today.

Key rejects industry concern

Prime Minister John Key has dismissed industry concerns that home-loan restrictions could slow the building of new houses in areas where affordability is at its worst.

The Master Builders Association has warned restrictions on bank lending imposed by the Reserve Bank could see 3000 fewer new homes built in Auckland.
But Key said the Government disagreed.

"This issue in Auckland about housing affordability and access is really one of supply," he said.
"One of the reasons why the housing market is going up so much is there aren't enough houses being built. So it shouldn't actually dampen supply."
He told Master Builders to talk to the Reserve Bank if they thought there was an issue.