I did Radio NZ's Morning Report commenting on the Reserve Bank's expected rate cut today. It says, "A Reuters poll of 33 economists had 32 expecting the RBNZ to slash the official cash rate by 50 basis points on Wednesday, bringing the rate down to 3.75 percent. Economist and professor at Auckland University Robert MacCulloch spoke to Corin Dann". You can listen to it by clicking this link. Dann characterizes my position that the so-called "neutral rate of interest" (where inflation is neither increasing or decreasing) is about 4% as out-of-line. He said in latter comments on Morning Report that the RBNZ says the neutral rate is more likely about 3%, so it can keep cutting without igniting inflation. Note that you can not directly observe the neutral rate. It is an academic concept.
Let me defend my view as being not remotely out-of-line. First, NZ's trend economic growth rate is now very low - we're experiencing "secular stagnation" that has been going on for several years. Its not a temporary dip in the business cycle with a strong underlying trend. Even the PM & Finance Minister agree productivity growth has almost ground to a halt. Our young talent pool is leaving in record numbers. The PM says to stop it, NZ must increase wages. But people also value status, not just money. And the high status jobs have all been given away to well-connected mates of National & Labour. Otago's Vice Chancellorship should have gone to one of our top research scholars who has become a big name on the world stage, of which there are a surprising number - but no, it goes to Disgraced Former Finance Minister Robertson. This week, NZ First Leader Peters announced 70 year old Heather Simpson, who was Helen Clark's Chief of Staff, has been appointed as Director of Ferry Holdings, in charge of buying new Cook Strait Ferries. She advised Labour on how to lock-down NZ's borders even tighter during Covid and was behind the disastrous creation of Health NZ that wrecked health-care. She joins 76 year old Sir Peter Gluckman advising Judith Collins how to restructure science and get NZ into the likes of AI, which he barely knows a thing about, and 70 year old Management Lecturer Lester Levy, who's in charge of single-handedly revamping our health system. But the problem is not management, it is the socialized model of single payer / single provider that is falling apart, both here and the UK. Not that I'm ageist - I'm also getting on - but these are terrible appointments.
Such issues mean getting NZ's economy growing can only be solved by supply-side policies that increase productive capacity, enhance incentives and end jobs for National & Labour Party boys & girls, not RBNZ sugar hits. There's also upward pressure on the neutral rate of interest due to the government's huge fiscal cash deficit of $20 billion, about 4-5% of GDP. What's more, the Reserve Bank of Australia said yesterday it doesn't want to cut its cash rate below 4% for fear of igniting inflation. Former US Treasury Secretary Summers argues that its "neutral rate is more likely above 4%". Kiwi real interest rates have been higher for decades than American ones, and most of the OECD.
My conclusion is that the RBNZ is in panic mode. Although the new Reserve Bank Act says it has a single mandate of price stability (it used to be dual, also giving it powers to keep employment high, at least in the short run) the Bank is desperate to get people borrowing & spending again. When you're dealing with an outfit full of dubious hires, and a Senior Leadership Team that has barely studied economics, you never know what it will do next.