The reaction to this remarkable announcement by the Reserve Bank Governor has been very muted. Am I the only person in the country that is completely disgusted that inflation has run out of control?
The Reserve Bank today said it expects the inflation rate to leap to 4.7% this year, the highest level in 18 years, but bank governor Alan Bollard still signalled a cut in interest rates.
As expected, he left the official cash rate (OCR) unchanged on 8.25% today.
He painted a bleak picture of the economy and because of that said the bank would cut the OCR later this year despite the rampant inflation.
How can he even be talking about reducing rates with inflation at least 3% higher than it should be? Don Brash would have never been so weak. Either Mr Bollard is bowing to political pressure, or the NZ economy is well and truly stuffed but doesn't know it yet.
The bank's record on inflation has not been great in the past 7 years - highly variable and if this is 'inflation targeting' then I'd better not play darts with Mr Bollard. He's likely to smash a window.
And this:
"If firms and workers start negotiating prices and wages on the expectation that inflation at, or above, 3 % is the norm, then the bank would have to respond with higher interest rates than assumed here."
I think this is a message to the unions. No doubt they will carefully moderate their demands as instructed - you can always count on the unions.
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