Gordon Campbell | Parliament TV | Parliament Today | News Video | Crime | Employers | Housing | Immigration | Legal | Local Govt. | Maori | Welfare | Unions | Youth | Search

 


Go slow on interest rate rises

Go slow on interest rate rises


“The Reserve Bank should be very cautious about any increase in interest rates when considering its Official Cash Rate announcement on Thursday,” says CTU Economist Bill Rosenberg. “For many households, especially those on floating rate mortgages, it will go straight into higher housing costs. There is pressure from financial markets to raise the rate by at least 1 percentage point (from 2.5% to 3.5%) by the end of the year and a further percentage point (to 4.5%) by the end of 2015.”

Each percentage point rise costs a family $20 per week for each $100,000 of their mortgage. So a family with a $300,000 mortgage could face $60 a week in extra costs by the end of the year, and $120 per week by the end of 2015.

“For families still struggling after several years of income increases barely meeting other price rises, and many going without pay rises year after year, this is a large additional cost to face”, Rosenberg says.

“In addition, some businesses looking to borrow to fund expansion, will have to consider whether they can meet higher borrowing costs. That could reduce job growth and improvements in productivity.”

“While the economy as a whole is recording strong GDP growth, remove the boost from the Canterbury rebuild and the growth looks very modest. Unemployment is still at 6.0% with 147,000 people unemployed, 257,100 jobless, and 122,600 part time workers wanting to work more hours. Wage growth is still very slow.”

Inflation is still low – at 1.6% in the last year, but 1.5% outside Canterbury where it was 2.4% in 2013. The biggest contributions to the increase were increased taxes on cigarettes and tobacco, housing, including rents, home ownership and energy. Insurance costs are also rising, as are some government-related charges such as for medicines, and tertiary education fees. “These do not look like a general increase in price levels and are better addressed directly rather than hurting living standards and job growth through cross-the-board interest rate rises,” Rosenberg says.

He says there is also a risk to the exchange rate and New Zealand’s international indebtedness if interest rates rise faster here than in other countries where they are mainly still very low with rises months or years off. “Rising interest rates, with the difference between New Zealand and the rest of the world growing, will attract an influx of money, raising the exchange rate and hurting exporters. It will encourage banks to use overseas borrowing to fund mortgages, raising overseas indebtedness – and making the Reserve Bank’s actions less effective.”

“If the bank sees house price inflation as the main danger, it should address that directly. It has started to do that by restricting how much people can borrow towards a house (Loan to Value Ratios), but has aimed that mainly at financial sector stability, not at house price stability. It could use other policies such as raising bank capital requirements for housing loans, tightening core funding ratios, or more directly restricting use of overseas funds. Any of these must be accompanied by much stronger government action to ensure they don’t end up hurting those who need good housing the most – such as first home buyers and people needing to rent good quality low cost houses”, said Rosenberg.

ENDS

© Scoop Media

 
 
 
 
 
Parliament Headlines | Politics Headlines | Regional Headlines

Gordon Campbell: On The Wage Hike For MPs (and Paul Robeson)

Hard to tell what is more infuriating. Is it the 5.3% increase on the already bloated salaries of MPs, or their pantomime of outrage at being gifted with such a wonderful back-dated bonanza?

As usual, Prime Minister John Key has busily tried to distance himself from the political fallout, even though he happens to be the main beneficiary of the Remuneration Authority’s generosity. Finance Minister Bill English says with a straight face that it would actually be very hard to give the money back...

Even if it were true, it would actually be very easy for English and any other guilty colleagues, to give the extra money away. There are any number of food banks or homeless shelters who would be able to put the money to good use. More>>

 

PARLIAMENT TODAY:

No Designers Or Visual Artists: Flag Panel Members Announced

The Government has appointed 12 New Zealanders as members of the Flag Consideration Panel which will engage with the public about a possible new New Zealand flag, Deputy Prime Minister Bill English says. More>>

ALSO:

Labour MP Stands Down From Portfolio: Comment From Carmel Sepuloni

The first I knew of my mother’s charges was when I was called by a reporter yesterday. I spoke to Andrew and we agreed there is a conflict of interest at the present time which means I will temporarily stand aside from the Social Development portfolio. It’s the right thing to do… . More>>

ALSO:

Gordon Campbell: On Whether NZ Troops Are The Least Of Islamic State’s Problems

Given that it has been politically packaged and sold as a training mission, the Iraq deployment announced yesterday by Prime Minister John Key seemed to be mysteriously short of actual trainers... The other wing of the argument is whether a troop deployment is (a) the only effective way and (b) the appropriate time to combat Islamic State. More>>

ALSO:

143 Troops, Possible SAS Deployment, Legalities Unsorted: PM’s Statement On ISIL

Mr Speaker, today I am announcing to the House the Government’s decisions about our contribution to the fight against the Islamic State of Iraq and the Levant, or ISIL... More>>

ALSO:

Liu Saga: PM's Dinner With Controversial Donor

John Key must front up to New Zealand and say what he discussed with Donghua Liu when the disgraced businessman paid $25,000 for the Prime Minister to come to dinner at his Remuera home, the Green Party said today. More>>

ALSO:

Roads: National MP 'Concerned' At Overseas Driver Crashes

Waitaki MP and Parliamentary Private Secretary for Tourism Jacqui Dean said she was concerned at the number of fatal crashes involving overseas licence holders and she really felt that the time had come for more to be done. More>>

ALSO:

Parliament Today: Parole Bill Passes

A bill reducing parole hearings deemed to be unnecessary has passed. The third reading of the Parole Amendment Bill was completed by 104 to 16 with the Greens and Maori Party opposed. More>>

ALSO:

Get More From Scoop

 

LATEST HEADLINES

 
 
 
 
 
 
 
 
Politics
Search Scoop  
 
 
Powered by Vodafone
NZ independent news