You could argue that it was time to cut the OCR further for two reasons. Firstly to bring the NZ dollar down and so help exporters. Secondly because inflation is so low (0.9%) as to be within the margin of error. Indeed if we are not careful we could slip into deflation and end up with a zombie economy like Japan’s. That surely would be the end.
The dramatic collapse of the gold price in the last week or two shows that investors in gold think that gold as a hedge against inflation is no longer needed. Fortunately property prices are holding up or recovering both locally and internationally and that is always a good sign.
Just to confuse matters there are many who see the turmoil in Europe, the weakening of currencies, and the near zero percent interest rates as a reason to buy gold on the back if its weakness.
I still reckon having a bit of gold tucked under the mattress can do no harm.
Central bank forecast to stick with 2.5pc rate
The Reserve Bank will sit on the fence and hold interest rates at 2.5 per cent this week, caught between a high New Zealand dollar and a strong housing market, economists say.
The one-page April review of official interest rates is due out on Wednesday, a day earlier than usual because of the Anzac Day holiday on Thursday.
The central bank is expected to hold rates this week and indicate that they would remain on hold till the end of the year, with inflation benign at less than 1 per cent in the past year and a widespread drought denting economic growth.
ASB Bank economists expected official interest rates to remain on hold till March 2014.
The currency was about US84.5c on Friday, not far off a recent peak above US86.7c. The exchange rate is about 4 per cent higher than the Reserve Bank assumed in March.
House prices are up about 8 per cent in the past year, driven by hot markets in Auckland and Christchurch.
But at the same time, official inflation remains extremely low, at 0.9 per cent up for the year to March and is expected to remain below 1 per cent, the bottom of the
Reserve Bank’s target band, for the rest of the year.