The Reserve Bank of New Zealand came out in mid July and said, no change to the OCR(overnight cash rate). And then we saw a whole bunch of changes in the fixed term interest rates offered by the banks.
What happened?
What are the other factors in play? So, one of them is the global price of money. The second thing is expectation of what the future price of money will be.
So, the OCR basically was unchanged, yes. The Reserve Bank did say that, we’re gonna put an end for the moment to the LSAP, the Large Scale Asset Purchase program. This is basically is an end to creating money and increasing the supply of it. That has some impact however, as we are aware this program was not being fully utilized, meaning the market might not feel much of an impact.
Expectation of the next moves, is important as well and clues rest in the commentary from the RBNZ. But even here a lot of the language was about inflation being potentially temporary, with a large factor being disruptions in the global supply chain.
So maybe the banks have jumped the gun? Maybe they are a lot smarter then us. Either way sometimes action is better than waiting in the wings, but time will reveal what we always know. Predicting something which is affected by so many variables is impossible.
Why would inflation be temporary?
Stopping and starting work leads to less production. Covid meant this became wide spread globally. Things don’t make themselves, ships don’t wait, planes don’t fly empty. In fact some transport actually disappears if companies are not maintaining capacity.
So we have trouble finding things and those who have more money get them first. So costs go up.
However you would expect that some of this might ease up as everyone gets on with it. So there is no point in the central bank trying slap down spenders, if they do not really have a choice and some other country will just end up getting those goods.
Other central banks
The Federal Reserve in the US, the European Bank, all have an impact on what happens here. We’re part of a greater economy. If we pretend it doesn’t, the NZ dollar will remind us otherwise. Basically the exchange rate is affected by the comparison of differing central bank positions. These days the expectation of the central banks reaction to inflation is huge factor for the economy.
PS Im not an economist(I am a mortgage adviser), get your own personalised financial advice if you have some how been able to actually get a direction from the above that potentially could sway your financial action.
