Debt is still too cheap, and many households are chalking it up bigtime to soften the impact of inflation. They are buying today on tomorrow's money, and this should be discouraged in the strongest terms possible.
Hickey sez:
Bollard doesn’t inspire confidence when he says inflation expectations “appear to remain anchored…though there is a slight upward drift.”So, we're hanging our hopes on a convenient coral reef for our anchor to trip over. Has the RBNZ been selling any $NZ lately? And what's going to happen to the price of oil once the Northern Hemisphere winter hits?
The need to anchor inflation expectations is not helped by the continuing fallout of the finance industry collapse either. As an economy, investors are staying out of it until things smooth down again. In order to encourage stability and encourage greater overseas investment, the cash rate should go back up.
The most worrying conclusion that could be gleaned from the speech is: "Help! Help! Cullen's got me held hostage! If you don't promise to vote Labour, he'll drop the cash rate by 25 points in September!"
Be very afraid.
