It’s time to invest — Reserve Bank
Reserve Bank boss seeks positive signals from Govt
Reserve Bank governor Adrian Orr is calling for New Zealand to take advantage of low interest rates, directly calling for greater investment signals from central government.
In a speech to a conference hosted by the NZX in Auckland yesterday, Orr repeated his call that conditions for investing remained good, with a need for new infrastructure, demand growth and an expectation that interest rates will stay low for years.
As well as urging businesses and iwi to invest, Orr issued a direct plea for greater direction from central and local government.
“We have the trifecta of sound government finances, clear infrastructure demands, and low hurdle rates for investing.”
A number of central banks around the globe have begun lowering interest rates in response to signs of an economic slowdown, amid concerns that a US-China trade war could spark a global recession.
While the Reserve Bank has responded by cutting the official cash rate (OCR) to a record low 1 per cent, Orr said the outlook for New Zealand’s economy should give confidence for investing.
“Some view these low [interest] rates as signs of concern. They can also be an opportunity. We are confident that rates will remain low for a number of years, providing a great environment to invest,” Orr said. “The good news for New Zealand, unlike many other OECD economies, is that our government’s books are in good shape, with room to expand investment, and there is already a strong fiscal impulse under way from public spending and investment.”
On Wednesday the Reserve Bank left the OCR at 1 per cent. The tone of the bank’s statement was more upbeat than economists expected, but financial markets still expect a further cut in the OCR in November as the economy fails to grow quickly enough to stoke inflation.
Wednesday’s review was the first since the Reserve Bank caused alarm by slashing the OCR by 50 basis points in August, deeper than commentators had been expecting.
BusinessNZ chief executive Kirk Hope wrote in August that some of the central bank’s actions were stoking uncertainty and business confidence would be better served if it focused on a “no-surprises approach to monetary policy”.
In his speech, Orr said the central bank was “rightly challenged” about the depth of the August cut, as to whether it suggested the monetary policy committee was aware of problems in the economy that traditional economic indicators were not showing. “Our answer remains ‘No we don’t’. We operate in a transparent manner with primarily public data.”
ANZ chief economist Sharon Zollner said this week that the Reserve Bank’s deep cut in August appeared to have caused alarm among some businesses and consumers.
Recent comments by the bank appeared to be an attempt to “soothe the economy, and talk businesses out of the funk that they seem to be in”.
While it was unusual for central bankers to talk so directly about the benefits of greater central government spending, Orr was right to call for assistance, as interest rates were so low that further cuts may provide limited benefit, Zollner said.
“I think he is entirely right that monetary policy needs friends and is just about tapped out.”