What is the RBNZ talking about

“New Zealanders have been showing early signs of moderating their borrowing.”

Does anyone know what these early signs are. From what I can tell, the growth in household borrowing is at record highs, in fact todays M3 data confirms that. If anything, household borrowing seems to be accelerating, I’m sure it will slow eventually, but why did the RBNZ say that if they didn’t mean it.

My suspicion is that the RBNZ wanted to talk the exchange rate down. They said that the level of our exchange rate was the result of New Zealanders borrowing too much, and buying things from overseas. As a result, higher interest rates will stop New Zealanders doing this, helping the exchange rate.

Now that is a load of crap. Our Reserve Bank needs to take a big long look at itself, and realise that it has been acting like a 14 year old girl who got a pimple just before the big ball. Stop making excuses for our inflation and just deal with it! I wish the Reserve Bank governor was a computer.

8 replies
  1. Owen
    Owen says:

    Or stop worrying about ‘price stability’ and focus on not increasing the money supply by 15% or whatever it has over the last few years, you know, actual inflation.

  2. Matt Nolan
    Matt Nolan says:

    Thats an interesting point. Ultimately, the reason we want to keep inflation down is so that the negative effects of price instability are minimised. However, in the long run, the rate of inflation is equal to the growth in the money supply. How long this long run is depends on the stickiness of prices, and as a result the growth in the money supply and current inflation can differ.

    Fundamentally though, unless this short term activity increases the supply of resources in the long-run (e.g. by facilitating investment) then the growth in the money supply will translate into inflation.

    Now in our current monetary system, the jump in the quantity of money being pumped into the system was the result of strong grow in money demand. By increasing interest rates we increase the price of money, reducing the quantity of money demanded. In this case the RBNZ just has a different choice variable, they can control price or quantity, however they want to end up in the same place.

  3. jameskey
    jameskey says:

    I didn’t know that 14 year old girls went to balls. More like school dances Matt.

  4. Matt Nolan
    Matt Nolan says:

    That is a good point. We used to call them discos in Otorohanga, I guess thats not something to brag about

  5. jameskey
    jameskey says:

    I’ve always wondered why schools call them discos even though disco died a long time ago.

  6. jameskey
    jameskey says:

    July 12, 1979 apparently. Regarding the final sentence, perhaps a computer governing the RBNZ wouldn’t be so bad – think of the commitment potential.

  7. Matt Nolan
    Matt Nolan says:

    I know, and it would also cut back on uncertainty, especially if they released the algorithm that the computer would use. And if they wanted uncertainty they could make it that if we were in a certain range their is some probability the computer would do something, and some probability it wouldn’t

  8. jameskey
    jameskey says:

    I agree, we don’t want certain people knowing everything with certainty, especially those damned currecncy traders.

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