Reserve Bank lowers cash rate
Before I get onto the main topic, I noted on the Reserve Bank website there has been a new appointment to the Board of the Reserve Bank. Dr Chris Eichbaum. Dr Eichbaum recently published a fascinating paper on the role of Ministerial Advisors.
I have absolutely no view on the suitability of Dr Eichbaum’s appointment. I do note however that the Minister forgot to mention that Dr Eichbaum worked in the Ministerial offices of Steve Maharey, Mike Moore and Geoffrey Palmer. That would have been useful to disclose.
The Government has been busy with over a hundred appointments in recent times – they also just appointed four Labour/left people to the new Land Transport Board.
Anyway back to the official announcement:
“Recent oil and food price increases mean that annual CPI inflation should peak around 5 percent in the September quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.
So the cash rate dropped 25 basis points to 8.00%. I would like to know exactly when the Reserve Bank thinks inflation will drop back to under 3%? 2009? 2010? 2011?
Even ignoring inflation, it appears that the Reserve Bank values the livelihood of those who have mortgages above people who are struggling to pay their food and fuel bills (which will go up, as a lower exchange rate will increase the New Zealand price of both).
I predict inflation will remain outside the target band for some years.