Alan Bollard has got it wrong. The only question is when.
Was it yesterday, hiking interest rates unnecessarily and condemning us to an undercarriage-buckling hard landing next year?
Or is the tightening absolutely necessary, but only because he went too easy on us last year, and the inflationary consequences of
that policy mistake are now coming home to roost?
Viewed from afar, New Zealand must present a bizarre spectacle. Growth has been slowing since the middle of last year. Business sentiment is in the pits.
And monetary conditions were already tight before yesterday's turn of the screw, with the official cash rate among the highest in developed countries and a badly overvalued currency.
One would not expect a central bank to be raising interest rates in such an environment.
Except, of course, that inflation is 3.4 per cent and the Reserve Bank, with many private-sector forecasters, expects it to stay above the top of the 1 to 3 per cent target band through next year.
Worse, from Bollard's point of view, inflation expectations have been rising sharply of late and stand at 3.3 per cent in the National Bank's survey. This is pretty strong evidence that monetary policy was too easy 18 months ago.
He had eased in mid-2003 as a precaution against risks that did not eventuate: a Sars pandemic, electricity blackouts and drought.
But he waited for a year to take those insurance easings back and has been behind the curve ever since, tightening in a dilatory and intermittent fashion.
Arguably that is the result of changes in his mandate compared with Don Brash's - a higher target band with fuzzy edges and a brief to be a kinder, gentler governor.
He has also had to contend with a structural change that makes monetary policy much harder to do, the preference for fixed-rate mortgages.
But the Reserve Bank still has the statutory responsibility to contain inflation and has been quick to rebut suggestions that the prevalence of fixed-rate loans has rendered it impotent.
This further tightening is liable to keep the dollar high for longer, hammering the export sector, and will push up the cost of business overdrafts. Eventually, the resulting slowdown (if not recession) will catch up with the profligate household sector.
As we wait for the pain to spread from Penrose to Ponsonby, we are entitled to wish we had had a stitch in time.
