Reserve Bank governor Adrian Orr has plotted a course to much higher interest rates, despite acknowledging the risk of a recession.
The central bank raised the official cash rate (OCR) to 2%, from 1.5%, on Wednesday in a bid to drive down inflation which is currently running at a 31-year high.
It also significantly increased its forecast of how high the OCR might rise over the next three years.
The Reserve Bank is now predicting the rate will need to climb to about 3.4% by the end of this year, peaking at 3.9% from June next year.
As the bank tends to move the OCR in increments of 25 basis points, that implies a high chance of the rate topping out at 4%.
As TDB has been warning from the beginning, the economic shockwave of Covid is here driven by supply side inflation caused by just in time global capitalism grinding to a halt.
The knock on effect of 6.9% inflation plus mortgage hikes caused by interest rates being forced up over the ocean of private debt is a fucking maelstrom of damage.
I argue we will face 10% inflation by December.
KiwiSaver accounts will diminish, mortgage rates and rents rise, food and petrol prices to continue to skyrocket as Russia’s war and China’s zero tolerance to Covid combine to create a force multiplier of risk, economic shockwaves and inflationary pressures.
Small business owners who have been alphas all their life and have grown attached to the liberty that liquid gives them are about to go belly up and that bitter resentment will feed ACT.
The poor are suffering beyond the financial fears of the middle classes, food banks are spiking 500% more demand and their overcrowded existence is ripe kindling for covid.
As Orr desperately struggles to tame the inflation beast, the housing speculation Grant and Jacinda accidentally set off that has enriched the wealthiest by a Trillion dollars risks bursting while international inflationary shockwaves destroy the ability to purchase.
Orr’s medicine is a stealth bazooka. He will increase over the next 12months an extra 4 rises till we hit 4%! That is going to destroy first home buyers and runs a real risk of mortgagee sales.
Since 2008 the central banks printed $25Trillion to fend off a global collapse, that artificially lowered the interest rate to the lowest in 5000 years of human civilisation, the unwinding of that is going to be cataclysmic.
Only Orr and Treasury seem to believe that tourists, migrant workers and international students are somehow gong to save the NZ economy in the 3rd and 4th quarter of this year.
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Original Source: https://thedailyblog.co.nz/2022/05/26/adrian-orrs-stealth-bazooka/