Bernard Hickey 's Opinion

Bernard is an economics columnist for the NZ Herald

Bernard Hickey: Is Alan Bollard turning Japanese?

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Is Reserve Bank Governor Alan Bollard turning Japanese? Photo / Mark Mitchell
Is Reserve Bank Governor Alan Bollard turning Japanese? Photo / Mark Mitchell

Alan Bollard doesn't seem very Japanese at all.

For a start he is very tall and says exactly what he means. He also likes to quote African proverbs when he's feeling a little cheeky during news conferences. These are not the sort of things Japanese central bankers do or say.

Unlike Japanese central bankers, Bollard is reluctant to intervene in exchange rate markets and his monetary policy statements and news conferences are a lesson in transparency and usefulness.

I've never seen him refuse to answer a question.

There is nothing inscrutable or opaque about Alan Bollard or the Reserve Bank of New Zealand or the New Zealand economy.

Yet, ever so slowly, he, and we, are turning Japanese.

Bollard's decision today to leave the Official Cash Rate on hold at 2.5 per cent and signal they'll remain there for some time wasn't surprising in itself.

Earlier this week after softer than expected inflation figures and weak business confidence, most economists pushed their forecasts for the next Official Cash Rate out to June 2012 from March 2012.

It seems as if every time a new piece of data comes through or a new crisis summit happens in Europe or the United States, the date for the long-forecast OCR hike seems to get delayed.

Back in April 2009 when the OCR was cut to 2.5 per cent, no one would have thought that almost two years into an economic recovery it would still be there.

It was raised to 3 per cent mid-way through 2010, but quickly slammed back down to 2.5 per cent on March 10 after the Christchurch earthquake. This was supposed to be an emergency cut that was quickly removed.

Yet seven months later it is still there and is now expected to stay there for almost another year longer.

At this rate the OCR will have been at or near 2.5 per cent for more than 3 years.

This is the sort of thing that happened to Japan's economy time and again through the 1990s and 2000s.

At least twice the Bank of Japan tried to lift its rates from rock bottom levels to somewhere near normal. Every time the rate hike kicked its indebted economy in the guts, forcing the rates to be put back down.

Japan's property market boomed during the late 1980s and then bust spectacularly going into the early 1990s. Its official interest rate was slashed to 0 per cent and has been stuck there for virtually two decades. Nominal Japanese GDP is still below where it was in the early 1990s.

Large parts of Japan's economy staggered on in a zombie-like state. Banks hoarded deposits, repaired their balance sheets and did little lending. Consumers sat on their wallets, put money in the bank and embarked on a multi-decade attempt to save their way to prosperity.

Sound familiar?

We're not at the Japanese type situation yet, but we're slowly turning that way, as are many of the developed world economies.

Banks in Europe and the United States are also staggering along like zombies. Unemployment rates are rising. Consumers and companies, particularly the richer ones, are hoarding cash and battening down the hatches.

That's why the Reserve Bank was suitably cautious in its obviously dovish statement today.

Inflation is cooling to the middle of its target band. The cooling global economic outlook is pressing down on commodity prices.

Bollard said he would only increase interest rates gradually if the global economy didn't slow down our economy.

Get ready for lower interest rates for longer, and longer, and longer and longer...

We should start preparing ourselves for Japanese rather than African proverbs at the next Reserve Bank press conference.

Slowly, but surely, Alan Bollard and the New Zealand economy are turning Japanese.

Bernard Hickey

Bernard is an economics columnist for the NZ Herald

Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.

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