Bollard's game

The official cash rate has been raised again. For the third time this year and the 12th time since 2004.

Blame for this is being leveled at government spending, as in Labour buying votes, or at Fonterra and the large payout because the rest of the world wants our milk and that old chestnut of the property boom.

Isn't interesting that the blame is never leveled at the weak US dollar and the affect of that on all those currencies fixed to the US dollar.

This increased government spending is the interesting one. The finger is firmly pointed at the increase to the family tax credit and kiwi saver.

The family tax credit was raised by up to $10/week/child. In reality that looks very much like the rate of inflation so it is unlikely to be that.

Kiwi saver, now there is a political hot potato. The government, obviously scared that the average worker was intending to give the scheme the thumbs down, increased the tax incentives on that and fiddled with the business tax rate on one hand and made it compulsory for employees to stump up so of the dosh on the other. Cost to the government $1000 for everyone who signs up and up to $20 tax break on the contributions. The average worker is now looking at the scheme and may sign up in unexpected numbers.

But hang on.
This money cannot be spent until the contributor is 65 years old.
It is savings.
The contributions are effectively out of circulation until then.
Isn't that exactly what Bollard and co want? People having less money to spend? Shouldn't that lower the OCR instead of raising it?

Since the whole thing kicks in in July I guess we will wait and see.

Then there is the property boom the has so far refused to bust.

Bollard ups the rate to make borrowing more expensive. Foreign money rushes in because foreign investors can make so much more money lending it out here than elsewhere. Credit is easy to come by. So people continue to buy houses and the price keeps going up.

There is another factor in play here as well. Houses in Auckland anyway are selling fast. Very fast, some in as little as a few days. This one sold in minutes. Very little is on the market for over a month.

Easily affordable credit or shortage of housing in the area?
Interest rates won't have any affect on the later.

Meanwhile those who have had mortgages for awhile are wincing in pain as their fixed mortgages roll over at interest rates beyond what they budgeted and exporters look at their bottom lines and shut up shop or shift off shore.

Time for a new game plan?

Even this blond cat can see the current moves aren't working.