Your views: OCR, interest rates hike

January may bring a lift in the Reserve Bank's official cash rate (OCR) and on top a .25 per cent rise in interest rates by the end of the month.

A survey by ACNielsen asked 1000 New Zealanders what effect a 0.5 per cent hike in the OCR would have on their current spending, 94 per cent replied little or none.

Do you agree or would a lift in the OCR effect your spending habits?

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Here is the latest selection of your views:

Colin England

The increasing rate of the OCR is not about to bring inflation down. This can be seen over the last couple of years as the increasing OCR has gone hand in hand with increasing inflation. A high OCR also encourages investment from overseas which increases the value of the NZ dollar in the international money markets and the amount of money in local bank reserves. As the banking system works on a fractional reserve system an increase in the banks reserve will increase the amount of currency in circulation by a significant multiple (Banks quite often work on a 10% reserve so $100 in reserve results in $1000 entering the economy). An increase in currency deflates the value of the dollar in the local economy resulting in increasing inflation. Perhaps what the Reserve Bank of NZ should be doing is increasing the amount that banks need to keep in reserve. This will cut the amount of money that the banks can print stabilising the amount of currency in circulation and so maintaining the value of the NZ dollar in the local economy effectively curtailing inflation. The RBNZ will also need to look at decreasing the OCR. This will discourage overseas investors in buying NZ dollars further curtailing the increase of currency in the local economy. It will also decrease the value of the NZ dollar on the international money markets allowing our exporters to become more competitive on the global market and so give a boost to NZ productivity.

Raj Subramanian

Mortgage banks have long adapted to OCR changes. Their emphasise is on fixed rate rather than variable rates. Only very limited or negligible numbers are taking variable interest mortgages - Therefore the OCR changes are just symbolic rather than controlling inflation in short term. Maybe over a year or two the effect would be felt. That too is questionable but the trend of several increases over one or two years would certainly affect consumer spending. But interest rate hike increases our exchange rate which is not good for exporters. And in the short/medium term, growth in economy is affected. Reserve Banks all over the world have problem in controlling inflation in the short term by OCR changes. NZ is no better. Instead of concentrating on only OCR changes by Reserve Bank, Government should explore viable measures like incentives to savings/superannuation and health insurance by the way of tax incentives. Say 50 per cent of superannuation contribution/health insurance premium/savings for first house buying/buying new share issues in targetted industries could be made tax-deductible from income. This will boost savings and cut consumer spending. Dr.Cullen please look outside the square

Neill

It is about time we had a decent recession. Better than destroying our future with excessive inflation, which persists because homeowners think they are wealthy because some idiot has told them that their house is worth more.

Loki Thompson

Changing the OCR in an attempt to affect the nation's spending habits is akin to a fairly blunt instrument. Sure, home and business owners with debt are affected, but many are shielded from the effects of a rake hike by the term of a fixed borrowing. An increasingly large proportion of the country do not fall into these categories and indeed, many, especially the aged who derive portions of their income from interest bearing investments, will gain from an increase in the OCR. Those with short term borrowings at exorbitant interest rates may simply not care or not consider a small percentage point shift material, since they accepted the unfortunate terms in the first place. While I'm not specifically in favour of it, a change to the GST rate would appear to have a far more wide reaching effect than a change in the OCR in that it affects the broad population rather than specific pockets of it. There are surely compliance costs and governments of limited vision tend to have a 'what goes up stays up' mentality on taxation rather than considering appropriateness for the economy. Further, there is not the same ramification on currency and the downstream effects on exports and imports. The days where OCR manipulation is the only tool available to the Reserve Bank to control spending will hopefully be numbered.

Larry Beard

Yes, it will have an influence on my spending. Mainly from a physiological point of view as I see it as a signal from the Reserve Bank that the economy is out of balance or if you like inflation is too high. If 94 per cent of NZ say it will not matter, it is because they have had it too good for too long and have lost touch with reality. Similar to the stock market crash in 1987, when people thought the sky was the limit. New Zealanders are very much a Hire Purchase people, a few more 0.25ers and I would be interested to see what percentage believe it will have no impact. High interest rates will be the undoing of lots of people. In Auckland most people I know have mortgage from $300k to $500k. Pressure on interest rates will be there for the next 12-18 months.