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Are low interest rates creating social inequality?
We asked Reserve Bank Governor Adrian Orr for his view.
Central banks around the world slashed interest rates after the global financial crisis.
Around the world we saw share markets and house prices boom.
Now we're doing it again to head off the worst impacts of the Covid-19 recession and stop the financial system from freezing up.
But very low rates make bank deposits less desirable and investors more inclined to take a risk on property and shares.
An influx of cash can inflate those markets potentially making the rich richer and exacerbating social inequality, as those without assets find them even harder to afford.
The issue is one that Reserve Bank Governor Adrian Orr is well aware of but not necessarily one he thinks he can solve.
The Economy Hub asked him if he was worried that the latest round of Reserve Bank measures risk adding to social inequality.
"I'm pleased you asked that," he said. "It is a global challenge. New Zealand is part of it, perhaps not as affected by it by affected enough."
Orr doesn't shy away from issues that low rates create.
"Without doubt those who have assets generally benefit at times of very low interest rates," he says.
"In that sense the haves…that have the house, that have assets will see nominal increase and those who don't have will see lower nominal wages or something."
But that was a secondary effect of the monetary policy. And we shouldn't take the primary effect for granted, especially in times of crisis.
"The primary impact is that demand stays up, people stay employed, people stay in jobs.
So don't forget about that primary part. Which is the key to monetary policy."
Those secondary issues were real but it wasn't necessarily job of monetary policy to deal with them, he said.
"That's broader: fiscal policy, welfare policy, regulatory policy," he said. "Its not something [where] we at the central bank have the tool at our disposal to assist."
The Reserve Bank's job was to stay focused on low and stable inflation and a stable financial.
That created different "pluses and minuses" at different times.
Year ago when there was high inflation it was the debtors and those who didn't have assets that gained.
"So there's always been these relative changes in monetary policy. At the extremely low rates we're seeing now, some of them become quite obvious," he said.
"That is a broader economic policy challenge globally - it's universal benefits, minimum wages, different tax regimes. It goes well beyond monetary policy.
Orr said he was pleased to see a lot more focus on fiscal support and stimulus in this crisis, which should help address some of those equity issues.
"One challenge is we try and put the lessons we learned in the last battle to addressing the current battle and those battles are always different," he said.
"But we've got monetary and fiscal policy working far better. We know the limitations of monetary policy so the light is being shone more quickly on the areas of impact...and I think as a society we are much quicker to think about assisting each other and being involved.."
Keeping interest rates low had been the Reserve Bank's key goal since the start of the crisis in March.
The official cash rate was slashed to 0.25 in March and the monetary policy committee committed to keeping them there until at least the end of the year.
A Quantitative Easing programme which gives the Reserve Bank scope to buy up to $60 billion in government bonds was launched to stop market rates rising.
"That has been working," Orr said.
Economists have been debating whether that $60b QE limit will be enough.
Thus far the Reserve Bank had kept its options open but was likely to be in a position to give a clearer indication in August, Orr said.
"How much easing is enough is still to be determined. Both on size of economic challenge and how much more stimulus is needed and on how it is working."
Concerns have also been raised about the strength of the kiwi dollar limiting export returns.
That's prompted speculation the Reserve Bank may act to bring it down.
The higher dollar was a case where New Zealand had been "a victim of its success", Orr said.
Being one of the few countries that has contained the pandemic meant traders were relatively more optimistic about our outlook and that had pushed the Kiwi to around US65c.
"There is very little we can do about it," Orr said. "Our balance sheet, as large as we like to think it is, gets lost in the wash of global capital."
One possible tool would be to extend the bond purchasing programme to foreign assets - to effectively sell off kiwi dollars.
While that would help "at the margins" with the exchange rate, the primary motivation for any extension to the bond-buying programme would always be to control domestic interest rates, Orr said.