Finance Minister Nicola Willis joins Ryan Bridge on Herald NOW to discuss what the 50 basis points OCR cut means for the economy.
Finance Minister Nicola Willis says early projections show growth returning to the New Zealand economy in the third quarter, one day after the Reserve Bank moved to cut the Official Cash Rate by 50 basis points to 2.5%.
Willis told Herald NOW’s Ryan Bridge that the Reserve Bank’s decision shouldprovide relief for both everyday Kiwis and help stimulate the economy, arguing that the drop signified inflation being reined in and growth returning.
“When inflation goes high, Reserve Banks crank up interest rates, [which is] what they did. And then once they get inflation under control, they bring them down and you see growth coming back,” she said.
“What my forecasters are telling me, and that seems to be the Reserve Bank’s view as well, is that in the third quarter of this year that’s just finished, they think that growth did return, and they’re expecting it to strengthen over the coming months.”
Willis was cautious not to overplay the numbers, describing the growth as “subdued” or “not as high as I would like it to be” when asked to elaborate.
Interest rates would only just begin flowing into the economy as people began to refix their mortgages, she added.
Finance Minister Nicola Willis says early data shows growth returned in the September quarter. Photo / Mark Mitchell
As Economic Growth Minister, Willis said it was “easy to say that I’m the problem” and reiterated that inflation and a spike in interest rates had “strangled the economy” over the past three years.
She simultaneously announced changes to Government procurement policy - coined a “procurement for growth policy” - that would simplify the rules and give businesses a stronger chance to obtain all or parts of state contracts, collectively worth more than $50 billion a year.
She acknowledged that this could drive up government costs, but said the flow-on effects would have a greater benefit for businesses and workers.
“In some cases, international firms will still win contracts, but they’ll be more likely to win those contracts in future if they’re using a Kiwi subcontractor, or they’re demonstrating that they’re doing training for Kiwi workers, hiring New Zealanders in jobs that might not otherwise exist.”
Squirrel chief executive Peter Cunningham told Bridge that, for mortgage holders, a subsequent fall in term deposit rates was more important than yesterday’s OCR cut. He argued that the Reserve Bank should make a similar cut in November to get the economy “out of this funk”.
Monetary policy settings had only just moved from contractionary to stimulatory after the Reserve Bank’s decision, he said, noting that the economy had been in recession “for the best part of two years”.
He forecasted a further reduction of 10 to 25 basis points before the end of the year, putting the one-year mortgage rate at about 4.25%, “unless the Reserve Bank is bold and does another 0.5, which is what I’ve been advocating for a while”.
“And then we should not be talking about mortgage rates. They should just sit there and we should get on with bloody growing this economy and getting cheerful for summer.”
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