Rising interest rates – Reserve Bank has time, “shouldn’t go too soon” – economist

The Reserve Bank is expected to cement an interest rate hike in the coming weeks, RNZ editor-in-chief Gyles Beckford has said, but economist Shamubeel Eqaub warns against d ‘go “too soon as after the global financial crisis”.

Image file.
Photo: RNZ / Samuel Rillstone

The Reserve Bank is expected to start raising the official cash rate this month – and that’s, among other factors, behind the expectation of a rate hike.

“The jobs numbers … 4% unemployment, sharp drops in underutilization, some strength in wages, all point to an overheating economy. And that sees inflation market economists cementing themselves. in a Reserve Bank rate hike in a matter of weeks time, and suggesting that they will go earlier and stronger on rate hikes in general, ”Beckford said.

Economist Shamubeel Eaquab said Morning report he thought it was good news as the economy had performed well during Covid-19.

He did not expect that there would be an increase in interest rates that would have a cooling impact on the economy.

https://www.rnz.co.nz/national/programmes/morningreport/audio/2018806921/reserve-bank-should-hold-off-on-raising-interest-rates-eaquab “The Reserve Bank has time. She should not go too soon like after the global financial crisis “- Shamubeel Eaquab

“We’ve had, you know, some of the lowest cumulative restrictions in the OECD, [the] the economy is in good shape, and we have a big catching up to pay increases that didn’t happen some sort of last year due to all the cautiousness related to Covid, ”Eaquab said.

Shamubeel Eaquab

Shamubeel Eaquab.
Photo: Provided

“I guess it’s more when you look to the future. How much work can’t happen because we don’t have workers and how much conditions will change with interest rates and the like. Because inflation is rising very, very rapidly.

“I know there has been an incredible sort of chatter that the Reserve Bank needs to raise interest rates right now, but here’s some background. The number of unemployed has gone down by about 3,000 people per year. compared to the same period last year, but official … number of job seekers, they are still up by nearly 45,000 compared to pre-Covid, and particularly for the Maoris, for the youngest, there is indeed still a lot of slack in the labor market, and when you look at wage increases, it is really making up for the ground lost last year.

“So, yes, it’s going to intensify in the next few times, but that pressure is still to come. The Reserve Bank has time. It shouldn’t go too soon like after the global financial crisis.

“The other thing is going on – we’re in a very strange environment right now because there are parts of the economy that are doing it pretty hard, but there are other parts that are growing really really fast. , and we are in fact, we’ve had some of the biggest productivity gains in the last six months … that’s good stuff. That’s not to say it’s widespread.

“There are a lot of areas where the lack of access to the label just means we can’t work – think of things like our infrastructure projects.”

The country has not had “scandalous” inflation, Eaquab said.

“When you think of the price increases, a lot of it was fuel and rent. So we have big problems with our housing market, but in terms of widespread inflationary pressures, they are yet to come… we “have a closed border, so the usual pressure of integration that keeps wages moderate – that’s not going to happen in the future, and so we’re going to see those inflationary pressures on wages rise a lot more over the next couple of days. years and that will affect inflation.

“But the Reserve Bank has time on its side. Why would you go so soon when the Delta variant is still creating heavy loads in the global economy, which still poses risks for New Zealand?”

“Yes, we have a big real estate boom. Yes, we have a complete shortage or supply shock in terms of the labor market because the borders are closed. It does not mean that the economy is in incredible shape and that things are overheating. I would say things are kind of back to the trend we had before Covid, so it’s not like we’re sort of in that kind of a 2007, 2008 period that we had before the global financial crisis when the economy is running so hot that we just couldn’t keep up. We’re not there yet.

“You know the net impact of these very small mortgage rate changes is very small, but the changes in LVR restrictions are huge. It’s the difference between whether you can borrow $ 1 million or $ 800,000. is really big, so you know, I think the restrictions the Reserve Bank took away, especially for investors on LVRs, that was the big policy mistake that needs to be reversed, and that would suck that money out of this second-hand housing market.

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