Archive for category: New Zealand Economics

The Reserve Bank will decide how much to cut interest rates tomorrow.

The market is currently expecting between a 50bp and a 75bp cut. However, there is still potential for a 100bp cut if the Bank downgrades their growth forecast sufficiently.

Ultimately, it will all be about the Bank’s forecast growth. In normal circumstances we might say that an OCR of 6% to 6.5% is neutral – however, we are expecting a period of sub-trend growth, a faltering credit market, and downward pressure on prices from overseas. In such an environment neutral could be substantially lower.

If the Bank now expects low growth to be substantially more persistent then I would expect a larger cut. Forget about “keeping bullets in the barrel” the Bank will want to get us sufficiently under neutral as soon as possible. If the Bank still expects a bounce back in growth (even following a sharp fall), then given the lags associated with monetary policy I would expect a relatively short cut.

As a result, in my opinion tomorrow’s decision will rest on the Bank’s “mediumish” term outlook (2-5 years). We will see I guess 😛

It appears that more details on the nine day fortnight will be avaliable over the coming days – excellent.  I am looking forward to having this element of the policy explained to me:

Affected workers would spend the 10th day of their working fortnight in training or education, paid for by the Government.

Where exactly do you get training once a fortnight?

What exactly constitutes training/education – does it have to be accredited, or can “doing your job” be training?

If doing your job is the training isn’t this effectively a wage subsidy?  (Something I have noticed the National party don’t want to call it – even if it is one of the few ways to make some potential economic sense of the policy).