Talking down interest rates

Both Clark and Cullen appear desperate to talk down interest rates, and are telling all the professional currency traders that they all have got it wrong, and that there is no risk of a delay in interest rates coming down.

The amount of political pressure on Alan Bollard will be immense in the next few months and it will be a test of his independence whether he ignores the clear wishes of the PM to cut rates before the election, even if it means he breaks his legally binding target of inflation under 3%.

A few journalists are saying it is only tax cuts that could keep interest rates high, and this is silly. It is the combination of both tax cuts and extra spending. If you replace a billion of spending with a billion of tax cuts, then in fact it will be reduce inflationary pressures as a proportion of tax cuts are saved not spent.

Martin Kay in the Dom Post reports on Cullen:

Finance Minister Michael Cullen has accused money markets of over-reacting to his tax-cut programme after a blip in the interest rate at which banks borrow for mortgages.

The two-year wholesale rate jumped from 7.7 per cent to 8 per cent after Dr Cullen announced his $10.6 billion, three-stage cuts on Thursday.

Well I know who I trust to be right!