Top political reasons
The news on Wednesday that the Reserve Bank was raising its interest rates by a record 0.75% immediately put both the bank’s and the Government’s overall management of the economy and the bank in the spotlight.
Here are our top five political takeouts of the decision.
1. This will likely be the backdrop to next year’s election
The election is widely expected to be called in November next year. It has become convention over the past few elections for the prime minister to signal early in election year when the poll will take place. Of course, Jacinda Ardern could call an election at any time, but if it is late in the year, according to the Reserve Bank, the country could be in recession, inflation will likely be just as high as it is today, interest rates will be higher still, and a lot of households will be paying higher interest rates and facing bigger mortgage bills.
2. The inflation rate will put the spotlight on the Government’s spending plans
This Government has placed a premium on the notion that it is reinvesting and spending more money on essential government services – it is what it stands for. This includes more spending on health, education, building up Kainga Ora’s housing stock and more infrastructure. That all costs money and the Government’s building plans in particular put pressure on labour shortages. Given that the Government makes up about 30% of the economy, there will be increased pressure on Finance Minister Grant Robertson to pare back Government spending.