Monetary Chicken meet Fiscal Roost

“The chickens are coming home to roost with rising mortgage rates being the direct response of the Government’s costly COVID response,” says ACT Leader David Seymour.

“Reserve Bank Governor Adrian Orr has long said that ‘monetary policy needs friends.’ Now the Governor is left to fight inflation all by himself, his fiscal friend is on a bender splashing the cash and adding to the inflation he’s legally required to fight.

“That was September 2019, when inflation was low and everyone wondered how to avoid inflation without resorting to negative interest rates. Orr wanted the Finance Minister to stimulate the economy to avoid a deflationary spiral.

“If monetary policy needed friends then, it still needs them now, but in a different way. Orr said in 2019 ‘The good news for New Zealand, unlike many other OECD economies, is that our government’s books are in good shape and there is already a strong fiscal impulse underway from public spending and investment.’

“Since then the Government has gone nuts with fiscal stimulus. While the rest of the world came out of COVID in the second half of 2021, we were still locked down, and continued with a ghost lockdown in 2022. The result is an absolutely staggering $21 billion deficit for the year to this June.

“That follows a $23 billion deficit in the year to June 2020, when the whole country was locked down for two months, and a five billion dollar deficit in the year to June 2021. That period included the 2020 election, where Labour were reelected between two $20 billion plus deficits.

“Despite this, the Government shows no hint of fiscal restraint. They have made spending a goal in itself, and forgotten about results.

“The net result is Monetary Policy has to fight inflation all by itself, and people will see it in their mortgages. Make no mistake, today’s interest rate hike is the cost of the Government’s COVID response.”