The UK has spent years fretting about its dismal productivity performance in the wake of the financial crisis, but it’s no closer to figuring out what has gone wrong or what (if anything) should be done about it.
Perhaps it should look further afield. The UK is not the only place with a “productivity puzzle” on its hands: New Zealand is scratching its head too. For a developed country with seemingly supportive policies on tax, regulation and education, New Zealand’s workers are surprisingly unproductive, and they don’t seem to be improving very quickly either. Read more
The benchmark rate in New Zealand is back to its record low of 2.5 per cent after the Christchurch earthquake prompted a half point rate cut from the Reserve Bank. The move is intended to lessen the economic impact of the quake, stimulating the economy until the rebuilding phase begins.
“Even before the earthquake, GDP growth was much weaker than expected through the second half of 2010,” said the Bank. Consumers remained cautious, and the export sector, while benefiting from higher commodity prices, had been repaying debt rather than spending. Then came the earthquake. “Signs that the economy was beginning to recover early in 2011,” said the Bank, “have been more than offset by the Christchurch earthquake.”
Waiting for more robust growth and a little inflationary pressure, the Reserve Bank of New Zealand has again kept rates on hold. The official cash rate has been held at 3 per cent since mid-2010, when two 25bp rate rises lifted the rate from its record low of 2.5 per cent.
Governor Alan Bollard said: Read more
In June last year, the Bank of New Zealand issued the country’s first covered bond – securities backed, for example, by mortgage payments. (So the bank, receiving loan payments, in turn issues debt, receiving cash for that and allowing them to lend more.) Seven months later, the central bank has already seen fit to limit issuance of these bonds to 10 per cent of a bank’s total assets.
The practice allows a bank to increase leverage. The popularity of this and similar leveraging techniques in the US and Europe has been blamed for difficulties faced during the credit crisis. Complex interdependencies are created by reselling debt, repackaging it or simply issuing new debt on the basis of cashflow from other debt. Read more
Lower-than-expected growth in Brazil and New Zealand have prompted their central banks to maintain rates; in South Korea, “greatly decreased” inflation motivated the hold decision, in spite of a “continued upward trend” in growth.
Brazil’s monetary policy committee, Copom, kept the Selic rate at 10.75 per cent, hinting that a rate cut might have been on the cards were it not for recent macroprudential policies, whose effects on monetary conditions were yet to be seen. Read more
The central bank of New Zealand is in good company: it started raising rates in the middle of the year and is now adopting a wait-and-see approach. In doing so the Kiwis join Australia, Brazil, Canada, Malaysia, Norway, South Korea, Thailand and, arguably, Sweden. These large economies all followed the same pattern: large cuts in rates during the crisis; a period of flat rates; rate rises; and now flat rates again, at a slightly higher level than the last time, but not back to levels considered normal over the past ten years.
The world’s central banks are forming distinct groups in this regard. Chile, India, Israel and Taiwan are still raising rates; Iceland and South Africa are still cutting. Other large economies – such as the US, Europe and the UK – have neither raised nor cut their rates since the crisis. Arguably there are two groups to watch for further signs of global economic stress: one, with Japan and Mexico in it, contains central banks that have started cutting rates again after a pause. The other group doesn’t exist yet among major economies: that of rate-raisers who go on to cut Read more
The Reserve Bank of New Zealand today raised the official cash rate 25 basis points to 3 per cent but said future increases were likely to moderate.
Governor Alan Bollard said: “The pace and extent of further OCR [official cash rate] increases is likely to be more moderate than was projected in the June Statement” Read more
The Reserve Bank of New Zealand held its official cash rate at 2.5 percent, as expected, with central bank governor Alan Bollard forecasting earlier-than-expected tightening in mid-2010. Like neighbour Australia, New Zealand’s central bank is factoring in the wider gap between the benchmark rate and funding costs in its rate decisions. A higher currency and higher long-term rates have also reduced the need for immediate action.