The Government's failure to ''get a grip'' on electricity
prices and the property market resulted in the Reserve Bank
again lifting interest rates, Green Party co-leader Metiria
Turei said yesterday.
The central bank lifted its official cash rate 0.25 points to
3% and indicated another rise would be on its agenda in June.
Mrs Turei said the Greens had long suggested a more actively
managed housing sector to reduce housing speculation.
Also, the unfettered electricity market, where prices were
spiralling upwards, despite demand going down, was clearly
''Today's lift in the OCR to 3%, the second hike in as many
months, will cost homeowners an extra $25 a month on a
$250,000 mortgage, on top of the $25 a month from the
previous rate rise.
''National is driving us towards mortgage rates over 8% and
that will really hurt already stressed homeowners and
families struggling to keep their heads above water,'' she
Reserve Bank governor Graeme Wheeler took a wider view in his
assessment of the economy, pointing to New Zealand's economic
expansion having ''considerable momentum''. GDP is estimated
to have grown by 3.5% in the year to March.
Growth was gradually increasing in New Zealand's trading
partners, but inflation in those economies remained low.
Global financial conditions continued to be accommodating.
Prices for New Zealand's export commodities remained high,
although auction prices for dairy products had fallen by 20%
in recent months.
Mr Wheeler acknowledged headline inflation was moderate but
said inflationary pressures were increasing and were expected
to continue doing so over the next two years.
''In this environment, it is important inflation expectations
remain contained. To achieve this, it is necessary to raise
interest rates towards a level at which they are no longer
adding to demand.
"The speed and extent to which the OCR will be raised will
depend on economic data and our continuing assessment of
emerging inflationary pressures, including the extent to
which the high exchange rate leads to lower inflationary
By increasing the OCR as needed to keep future inflation near
the 2% mid-point, the bank was seeking to ensure the economic
expansion could be sustained, he said.
Bank of New Zealand head of research Stephen Toplis said the
strength of the New Zealand dollar had annoyed the Reserve
All and sundry expected the bank it lift its cash rate.
However, the focus was on how Mr Wheeler would convey the
message he was uncomfortable with the strength of the dollar
while ensuring fixed interest rates did not dip.
The potential for getting that wrong was high but Mr Wheeler
handled the message with aplomb, resulting in only modest
financial market repricing, Mr Toplis said.
But the dilemma the Reserve Bank faced remained the same. The
bank - and the country - would be better served with a lower
currency and higher interest rates than at present.
''Engineering the outcome is near impossible. Instead, the
bank is reliant on international markets deciding the New
Zealand dollar should fall. The bank continues to do its best
to highlight this should be so but has no power to do
anything else but talk about it.''
The BNZ was also a strong believer the dollar should start to
fall and the catalyst should be in recognising falling dairy
prices would eventually feed into the terms of trade, he
The Reserve Bank bought itself time yesterday. It now had
another seven weeks to put together a full set of forecasts
and to watch the progress of the dollar and analyse its
''It's really hard for the Reserve Bank to justify rate hikes
if its forecast inflation falls well below the mid-point of
its [1%-3%] target band.
"It is safe to say the longer the currency stays higher, the
greater the chance there is a pause in the tightening
process. The Reserve Bank can tell all in June,'' Mr Toplis
The Labour Party and the Council of Trade Unions also blamed
rising house prices for the rate rise in what seems likely to
become part of the Opposition's political campaign before the
September 20 election.