Reacting after the fact

Adrian Orr maintains there needs to be firm evidence that inflation is subsiding before he will moderate or halt OCR increases.

This is even though it will take nine to 12 months before the bulk of mortgage holders on fixed rates feel the full impact of a doubling/ trebling in interest rates. So he is maintaining a bullish stance of supersizing OCR increases and admitting now that this will induce a recession next year.

He and the Monetary Policy Committee were instrumental in getting New Zealand into this bind of high inflation by maintaining historically low interest rates and bond buying until more recently, despite evidence as far back as early 2021 that the economy was doing much better than expected and house prices were going through the roof.

Orr is now making the same mistake as he did then of only reacting after the fact. Any successful seasoned investor knows they have to take a view on what they think will happen. Waiting until you know the outcome is too late.

The result will be severe for the economy and many individuals like recent first-home buyers and indebted small-business owners. The unfortunate thing is that it needn’t have been that way.

Phil Kelliher, Mt Victoria