Comment
There are many theories now circulating about what the Reserve Bank will do to lift inflation back to its target mid-point of 2% when it is now languishing now at 0.3%.
Governor Graeme Wheeler is putting much faith in the falling New Zealand dollar, which is pretty much in the hands of other central banks.
The US dollar surged for a third straight day yesterday, helped by figures confirming the United States economy is expanding at a moderate rate.
In response, both the New Zealand and Australian currencies sagged.
Mr Wheeler said on Wednesday the kiwi still had some way to fall but his speech posed more questions than answers.
While scolding those economists who are forecasting a fall in the official cash rate to 2%, he never said why.
And while most forecasters are predicting two more cuts in the OCR by October to take it to 2.5%, there are still many reasons why a 2% target looks achievable.
The key messages from Mr Wheeler's speech include the cash rate will be cut further, with the main reason for doing so keeping the currency on a downward track.
In theory, the lower interest rates fall, the less interest there will be in the New Zealand currency as investors lose the appetite for putting their money into the NZX.
However, given the returns from the NZX, it is unlikely the dollar will fall completely out of favour.
It is starting to feel as though the Reserve Bank has run out of options.
New Zealand has a two-speed economy. Until recently, Canterbury and Auckland were driving the economy through construction following the earthquakes and the surging housing market respectively.
Now, even Mr Wheeler acknowledges the Canterbury rebuild has slowed and economists are picking it has peaked, albeit at a high level of activity.
Regions around New Zealand have been crying out for some sign the Government has not forgotten how important they are to the overall economy.
Until Immigration Minister Michael Woodhouse suggested some extra points for people wanting to move to the regions for 12 months, nothing has really happened.
The Reserve Bank is bringing in new lending restrictions for Auckland home buyers but, from where we sit in Otago, all they have done is encourage a rush of last minute buying before the October 1 deadline.
There is no doubt Auckland is a global city and must do well for the country to succeedBut it really is time the Reserve Bank took a look at how the rest of New Zealand is doing and make moves accordingly.
