“Finance Minister Grant Robertson admitted in Parliament today that he made an $8.46 billion mistake, underwriting the Reserve Bank’s inflationary Large Scale Asset Purchase program, but he has no regrets,” says ACT Leader David Seymour.
“Robertson essentially took a bet that he’d get the free money the Government wanted to spend -$54 billion dollars that the Reserve Bank provided the Government in return for Government Bonds- for rock bottom interest rates. He lost the bet as interest rates rose, and now we’re all on the hook.
“When Robertson promised to underwrite the Reserve Bank’s unconventional monetary policy, the Treasury assumed that ‘The OCR remains at 0.25% for 12 months, then increases linearly to 1.0% in 2023, then increases to 2.5% in 2028 and remains at that level…’
“Predictably, printing $54 billion helped set off the highest inflation in 32 years. The Reserve Bank responded by raising interest rates. Rising interest rates mean that the Coupon Rates for Government Bonds are lower than investors can get elsewhere. Investors want the market return so won’t pay as much for Government Bonds. The Government’s indemnity means the taxpayer now must make up the shortfall. It is Robertson’s $8 billion policy own goal.
‘The winner was the Labour Government, who could borrow cheap money, and make it look like they’d found a free lunch by the time of the October 2020 election. As the Reserve Bank has said: ‘We believe the peak impact of the LSAP programme occurred around the time of the August 2020 Monetary Policy Statement…  During this time, we estimated that New Zealand government bond yields were at least 50 basis points, and potentially more than 100 basis points lower than they would have been without the LSAP programme.”
“What the Government should have done is resisted the temptation to print money, and made rational decisions about its COVID response. It was only with oceans of cheap printed money that Labour was able to eat its cake and have it too. Now the chickens are coming home to roost.
“Only Grant Robertson could lose $8 billion and say he has no regrets, he should be apologising for getting it wrong to the tune of nearly $5000 per household."