The culprit for interest rate rises

Fran O’Sullivan fingers government spending as the real culprit behind the Reserve Bank having to increase interest rates.

The focus merely on the housing sector, is risky. Higher interest rates do not just affect house purchases but business development.

The record high exchange rate is going to bite exporters very soon. I am not sure people realise how much of a difference there is between 74c (high), 55c and 40c (low). One might think only a small difference but because the calculation is an inverse it is much more.

For example let’s say you have a market price for your exports of US$100/unit. At 40c you get NZ$250, at 55c you get NZ$182 and at 74c you get NZ$135. So your revenue at 74 c is 26% lower than at 55c and 46% lower than at 40c. Now if your margin is only 30%, bang you are unprofitable.