New Zealand “not well placed” on interest rates | the islander

Reserve Bank Governor Adrian Orr has acknowledged New Zealand is “in the wrong place” as inflation threatens to derail its COVID-19 recovery and challenges the government’s agenda.

However, the government remains ready to push through reform plans in next month’s budget, which include new housing, health care and climate change measures that will cost billions.

Inflation is on the rise in New Zealand, with the consumer price index pegged at seven percent when new figures are released on Thursday.

The Reserve Bank is already fighting inflation by raising the official cash rate from 0.25 in October to 1.50 last month.

In an address to the International Monetary Fund on Tuesday, Mr Orr said further rate hikes were ahead, with the RBNZ forecasting an OCR above 3% within 12 months.

“What we need to do next is very obvious, which means we’re not in a good position now,” he said.

“We need to tighten monetary conditions and that is what we have done.”

Mr Orr suggested that the New Zealand government should now step in and help keep inflation within the desired range of 1-3%.

“Central banks are not going to fulfill their mandates on their own. We are going to need support,” he said.

“We’re going to have to be very clear with our fiscal authorities…and how they can help put in place effective, more targeted fiscal policies.”

In response to the address, Finance Minister Grant Robertson ruled out a change in tactics from the government, saying some areas needed investment.

“We have to continue building state houses, for example…we still have a housing crisis,” he said.

“And in the healthcare system, where COVID-19 has shown us the importance of the kinds of reforms we are proposing.

“We have to make these investments for the long term.”

This year’s budget comes halfway through the legislature and represents the best chance for Jacinda Ardern’s Labor government – which governs by majority – to deliver key elements of its agenda.

In addition to ongoing housing spending, it centralizes the healthcare system at great expense and implements its first “carbon budget” based on an independent assessment of how best to reduce greenhouse gas emissions.

Mr Robertson has also pledged to maintain a revenue insurance scheme that would see Kiwis paid 80 per cent of their wages if laid off.

“No cost is imposed on anyone until at least the end of 2023,” he said of social insurance.

As the high-stakes battle between monetary and fiscal policy plays out in Wellington, around New Zealand, Kiwis are feeling the pinch at the hip pocket.

The soaring cost of living is the number one political issue, with the government increasing social benefits and cutting excise duties on fuel in response.

The opposition links inflation to government spending, urging it to tighten.

Mr Robertson said Kiwis could see through those suggestions.

“New Zealanders understand that (inflation) is a global phenomenon. They just have to see the headlines every night,” he said.

“Inflation in the United States is over eight percent. Inflation in the UK is over seven percent. They can see the war in Ukraine. They’ve heard about supply chain constraints.

“These global factors are driving inflation.”

Australian Associated Press

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