By Chamber CEO, Don Good
The August OCR announcement has come and gone and with it a great deal of negative press on the Governor, the Monetary Policy Committee and the Reserve Bank whilst applauding the cut to 5.25%
OCR 5.25% - Monetary restraint tempered as inflation converges on target - Reserve Bank of New Zealand - Te Pūtea Matua (rbnz.govt.nz)
A respected economist once said:
“When facts change, I change my mind – what do you do sir?” John Maynard Keynes
Facts do change and it would not surprise us if non-tradeable inflation remained high and those predicting a run of OCR reductions would need to review their facts and conclusions.
The work of the new government is certainly taking the heat out of the economy, but inflation is a tiger that is not easily tamed.
Let us be thankful for the drop and enjoy some new-found optimism for our economy but stay wary of a domestic wage/price spiral breaking out.
It would pay to be cautiously optimistic and be prepared to change your mind and your plans. Please take note of the final few sentences in the announcement.
“The Committee agreed to ease the level of monetary policy restraint by reducing the OCR to 5.25 percent. The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2 percent target.”
