Come hell Orr high interest rates, inflation must come down

Shocking most economists, the Reserve Bank lifted the OCR to 5.25% yesterday and is now facing calls to cool its own jets or risk engineering a deep recession

Mōrena and welcome to The Bulletin for Thursday, April 6, by Anna Rawhiti-Connell. Presented in partnership with Z Energy.

In today’s edition: the final word on Jacinda Ardern, MP; Te Pāti Māori will contest general seats and not just Māori seats at election;  leaked Te Whatu Ora staff survey results reveal lack of confidence in reforms; but first, the Reserve Bank sticks to its guns on inflation

Reserve Bank governor, Adrian Orr

OCR near a rate not seen since global financial crisis

Very nearly Happy Easter to all who observe and to those who just enjoy four days off. You may recall Reserve Bank governor Adrian Orr sending us off for our last significant holiday break with a stern “Cool the jets” message. There was no press conference to accompany the Rserve Bank’s (RBNZ) official cash rate (OCR) announcement yesterday but the message was just as clear as we head into Easter as it was at Christmas. Like David Bellamy telling us Old Man's Beard must go in the 80s, inflation must come down. The RBNZ didn’t quite rocket us back as far as that ad does, but with a 50 basis point hike and the OCR at 5.25%, we are now in December 2008 territory when the Baha Men’s Who Let the Dogs Out was the number one single and we were coming down off the peak OCRs prompted by the global financial crisis.

Recent severe weather events an inflationary risk

The hike took everyone by surprise. Hat tip to David Hargreave at interest.co.nz for his shock and Orr pun. I am expecting a cease and desist letter about today’s headline. Hargreaves’ article is a very good and plain language summary of why the Reserve Bank surprised everyone yesterday and the challenges that lie ahead. In a nutshell, the RBNZ wants home loan rates to stay where they are to continue to reduce household spending. The committee said inflation is still too high and persistent and employment is beyond the maximum sustainable level. The primary concern is that due to offshore banking instability (the collapse of Silicon Valley Bank, the first domino to fall), wholesale interest rates have fallen since February and that could prompt retail lending rates to fall further. They also highlighted recent severe weather events as increasing “the risk that inflation expectations persist above our target range.”

The impact on home loan rates and home owners

As Stuff’s Susan Edmunds explains, the impact on home loan rates should be muted with most of this hike already baked in. Corelogic economist Kelvin Davidson also said the flow-through to mortgage rates was likely to be limited. “It still seems likely that mortgage rates are at or close to a peak,” he said. The Herald’s Jenée Tibshraeny and Raphael Franks point out however, that the latest available data shows that in February, 55% of the $310b of fixed mortgage debt taken out by homeowners, investors and businesses was due for refixing within the following year. Crunching the numbers and likely political impact, Stuff’s Luke Malpass notes that for those with a $400k mortgage who have to re-fix from a 2.6% interest rate to 6.4%, it's a potential fortnightly increase of $600 in repayment costs. 

RBNZ ‘done too much’ as economists warn of risk of deep recession

Yesterday’s news has several economists telling the RBNZ to cool its own jets on the OCR. New Zealand Council of Trade Unions economist Craig Renney said the RBNZ should pause before it considers further increases in interest rates noting monetary policy operates with a significant lag. Renney also took issue with the note on maximum sustainable employment. “To say that unemployment is above its maximum sustainable level is to accept that tens of thousands more Kiwis must become unemployed,” he said. A round up of reactions from economists here but research firm Jarden said the bank had taken a “myopic” approach to achieving its inflation target “likely to result in a more pronounced economic downturn in the second half of 2023.” Brad Olsen, Infometrics chief economist, said there were clear risks that the bank would go too far and engineer a deep recession.

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The final word on Jacinda Ardern, MP

If you’ve been looking for a stonking good feature read and reflection on both Jacinda Ardern’s time as prime minister and her valedictory speech last night, Toby Manhire has just that this morning. Manhire was in the House last night to observe the many small moments that made up a very big moment as the self-described mother, ex-Mormon, nerd, crier and hugger bade farewell to her 15-year political career. For what it’s worth, I thought the claiming of some of the characteristics often used against her was a class act. Cited towards the end of her speech, she used the descriptions of herself to encourage those who think they might not fit the typical mould to consider taking on leadership roles. Ardern also harked back to her 2017 “nuclear-free moment” remark and made one particular ask of the MPs present during her speech: that they “take the politics out of climate change”. Just to put the politics back in for a moment, it is fair to say there will be those who might consider it right for that to be aimed at her own party, as much as the others. 

Te Pāti Māori president wants to see the party contesting all seats

BusinessDesk’s Tamara Poi-Ngawhika reports this morning that Te Pāti Māori president John Tamihere wants to see the Māori party contesting all seats, not just the Māori electorates. That is a departure from the party’s approach to date where, since its establishment in 2004, it has only contested the Māori seats. “We’re a movement and it’s our time," Tamihere said. “We get to determine who the prime minister is going to be and that’s a big thing.” Tamihere is basing his comments on several polls that put Te Pāti Māori in the position of king-maker at the next election. Tamihere said the poll results gave the party “comfort” because they're polls of the general seats. “They’re not a poll of Māori sentiment in Māori seats,” he said.

Fuel up for your Easter road trip

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Only a third of Te Whatu Ora staff feel they have the resources to perform their roles well

Really good Kathryn Ryan interview on Nine to Noon yesterday morning about the results of a leaked Te Whatu Ora staff survey. The survey was conducted in late November to mid December last year and completed by 28,000 of the new health agency’s staff (29% of the organisation). The results of the survey reveal just over half of staff surveyed believe the merger of District Health Boards will improve the health needs of the community and only a third feel they have the resources to perform their roles well. Ryan spoke with heads of health worker associations. It comes a week after leaked material from the Counties Manukau staff survey revealed 19% of respondents at Middlemore Hospital's emergency department believed they had the resources to perform their jobs well. In other Nine to Noon news, comments made by Te Pūkenga chief executive Peter Winder about the scale of potential job losses at the merged polytechnic in an interview with Ryan last week, have staff consulting a lawyer.

Click and collect

• Paediatrician says childhood immunisation rates are at their lowest since records began as public health officials urgently try to sequence a strain of whooping cough to see if it is unusually deadly

• Broadcasting minister Willie Jackson said yesterday a new broadcasting strategy is under development (paywalled) and that the first elements will emerge within “the next 24 hours.” Stuff reports a funding boost for RNZ and New Zealand On Air is on its way.

• RNZ’s Farah Hancock asks whether offshore private equity firms should be running our public transport buses

• The estimated cost of repairing Auckland’s water network after Cyclone Gabrielle and the Auckland floods is now nearly double first estimate

• “Generally speaking it is the position of the government that lamp posts shouldn't fall down” — more on the lamps falling to the ground in Wellington

Got some feedback about The Bulletin, or anything in the news? Get in touch with me at thebulletin@thespinoff.co.nz.

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Sporting snippets

• NZ Rugby provides roadmap and $22m in funding for the women's game

• 150 former football, rugby league and rugby union players suffering from neurological impairments due to join class-action lawsuit against their respective governing bodies

• Netball’s hunt for the 100% goal shoot

It’s not Friday but…

Rockin’ Rod Stewart is in the country and apparently played a blinder in Dunedin last night. Before arriving here, he was spotted at a Bunnings in Sydney. He was looking for a sausage sizzle and was a bit disappointed to find those only happen on weekends. Highly relatable. He still took a photo with the team. He was also spotted at Takapuna beach and despite being in close proximity to something we could possibly call a dock, he did not rock it.

Have a safe and restful break over Easter. The Bulletin will be back next Tuesday morning.