Finance Minister Downplays Likelihood Of Further OCR Rises

Russell
Palmer Political reporter

With
the Reserve Bank lifting the official cash rate, Finance
Minister Nicola Willis is downplaying the likelihood of
further rises this year.

The 25 basis point increase
to 2.5 percent came in response to spikes in inflation from
the Middle East war.

This increases borrowing costs,
including for mortgage holders – although commentators
believe many banks have
already priced increases in.

The Monetary Policy
Committee (MPC) – which sets the rate – says with inflation
still above target and economic activity increasing, further
OCR hikes are “likely to be required to return inflation to
the 2 percent target mid-point”.

Willis pushed back
when asked if that meant things would get worse for
households before they got better.

“Whether or not the
Reserve Bank will make future decisions to lift interest
rates is too soon to determine. In fact, the Reserve Bank
are very clear in their statement that they will be watching
the incoming data and that it is far too soon for them to
commit to that course of action at this point,” she
said.

The committee noted that with inflation pressure
easing as a result of a ceasefire in the Middle East,
stronger inflation in the medium term would depend on “the
extent to which recent cost increases feed through into
higher prices”.

Willis said the lower petrol prices in
recent weeks as a result of the ceasefire meant people were
more confident in being able to spend, leading to faster
growth.

However, that growth can also lead to higher
inflation if demand outpaces supplies.

“The Reserve
Bank is essentially saying such is their confidence in a
strengthening economy that they think they now need to be
very careful to watch that inflation doesn’t stay out of
control,” Willis said.

She said in contrast to the
previous Labour government, she had avoided “highly
stimulatory spending behaviour” and National had also
refocused the Reserve Bank on inflation alone, rather than
requiring it to take account of unemployment.

“We have
simply not increased spending at the rate that the last
government did. We have taken careful fiscal decisions,” she
said. “My opponents have said that I should be spending
more, they have opposed every reduction we have done across
government services, changes to policies, which we have
needed to do to clean up the fiscal mess left to
us.”

Willis said having inflation under control was
needed to keep “sustainably high employment”, blaming
current high unemployment rates on the rampant inflation
that followed the Covid pandemic.

“We went through a
period where inflation got completely out of control, got up
to more than 7 percent stayed out of band for years on end,
and then the crash after that has been extremely painful and
has led to many New Zealanders losing their jobs. I don’t
want to repeat that history,” she said.

“The evidence
from around the world is giving your Reserve Bank a single
mandate makes them focused on keeping inflation affordable,
and that’s good for all New Zealanders.”

In
a statement, Labour said the OCR hike meant higher mortgage
payments for families already struggling with the rising
cost of living under National.

“National promised to
fix the cost of living, but two and a half years on, their
record is higher costs and higher unemployment,” Labour’s
Finance spokesperson Barbara Edmonds said.

“Power
prices have gone up 20 percent in two years. Everyday food
items like mince and milk are more expensive. Seeing a
doctor costs more, and now mortgages are set to go up
too.

“Christopher Luxon and Nicola Willis were quick
to take credit when mortgage rates came down. They need to
take responsibility now they’re set to go back up.
National’s flawed plan was to let the Reserve Bank do the
heavy lifting but this just shows they have no
plan.”

Edmonds said New Zealand needed a government
that was focused on helping people with the higher cost of
living, and making the economy more productive, but
“instead, Christopher Luxon is making things
worse”.

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