Alan Bollard performed the monetary policy equivalent of a flick pass this morning.
Dan Carter, if he was a monetary policy type, would have been proud. It was a deft exercise in shifting responsibility for rebalancing and slowing the economy across the street from the Terrace to the Beehive.
Here's how he did it.
Firstly, Bollard announced he would keep the Official Cash Rate (OCR) at a record low of 2.5 per cent and said any future rate hikes would not happen until the second half of 2010. This surprised many in the wholesale interest rate markets who had already been pricing in OCR hikes from early 2010. It may force some of the banks to reverse course on their mortgage and deposit rate hikes of recent weeks.
Secondly, Bollard appeared to transfer some of the responsibility for the coming tightening of policy to the government.
"Further ahead, removing some of the current fiscal stimulus is likely to reduce the work that monetary policy will otherwise need to do," he said.
Maybe Bollard knows something about the current budget thinking that we don't, but it's a bit of a punt to assume the government will be tightening sufficiently to slow a rebounding economy.
Lags between government spending decisions and economic effects are at least as long as for monetary so Bollard must be very confident about his economic telescope. Let's hope he has it turned the right way around.
Thirdly, Bollard warned again about the risk of New Zealand's recovery being unbalanced with too much housing-led consumption growth and not enough export-led production growth. But again he seems much keener for the government to fix it than the Reserve Bank.
"The current composition of growth continues to raise questions about its sustainability. These concerns would intensify if credit growth began to propel stronger domestic demand," he said.
One reason for any strong credit growth to the household sector is the OCR at a record low 2.5 per cent.
Bollard has previously said he would much prefer the government to change the tax rules around housing investment to help this rebalancing.
Like any good first five, Bollard can rightly say one of his jobs is to 'spread it wide'.
It's a pity. New Zealand's economy needs some leadership and he is in the perfect position to provide it with a quick chip kick higher of the OCR or a sidestep into tougher capital rules for banks lending to home buyers.
Go on Alan, have a go.
- Bernard Hickey
PICTURED: Reserve Bank governor Alan Bollard. Photo / Mark Mitchell