Make this 666++ interest cuts by global central banks since Lehman
From Bloomberg: (bold mine)
New Zealand’s central bank cut interest rates to a fresh record low and flagged more easing to combat low inflation, disappointing some investors who were looking for a more aggressive signal. The local dollar surged.“Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range,” Reserve Bank Governor Graeme Wheeler said in a statement Thursday in Wellington, after lowering the official cash rate by a quarter point to 2 percent. The central bank’s forecasts indicated at least one more rate reduction is likely.While today’s cut was expected by all 16 economists surveyed by Bloomberg, investors had priced a 20 percent chance of a half-point reduction, according to swaps data. Wheeler said that a 50 basis points move wasn’t seriously considered or justified, in a media briefing following today’s decision.Wheeler has been prodded into further monetary loosening by the strong New Zealand dollar, which is suppressing import prices and keeping inflation below the RBNZ’s 1-3 percent target band. The currency has climbed since Wheeler last cut rates in March as he grew wary of fanning a housing boom with even lower borrowing costs.
The supposed publicized intention of the rate cuts has been due to a stronger NZ dollar (kiwi), but the response of the market, given the lesser than expectation of policy action, has been to strengthen the kiwi.
So even from a short term standpoint the RBNZ's action has only produced market actions opposite to the desired effect That's the USD-NZD quote as of this writing.
In my view, the RBNZ's interest rate action has hardly been about inflation targeting....
The real issue: Record household debt to income!
Since 2008, as the central bank chopped policy rates to record low, household debt climbed to surpass the 2008 highs.
Yet the bigger the debt, the larger the cost of repayment or debt servicing. Hence, RBNZ's lowering of the
debt servicing cost, in the hope that households will act to mend their respective
balance sheets. But the RNBZ forgets, ceteris paribus, that when the cost of an activity decreases, people do more of the said activity. So debt continues to ballooned due to the RNBZ's interest rate subsidies.
The RNBZ has only been kicking the proverbial can down the road.
Naturally, banks bankrolled most of the surge in household debt, as shown by the sustained surge in the banking system's balance sheets.
And where has all these gargantuan growth debt flowed into?
Well the blunt answer: Inflate asset bubbles.
Apparently even the central bank has recognized this. From the same Bloomberg article: (bold added)
Wheeler last month announced new lending restrictions for property investors in an attempt to cool the nation’s rampant housing market and give himself more room to lower rates. From Sept. 1, the Reserve Bank will require investors across New Zealand to have a deposit of at least 40 percent to obtain a mortgage.Record-low borrowing costs have encouraged the housing boom to spread beyond largest city Auckland, where surging immigration and a supply shortage have seen prices almost double since 2007. In the North Island city of Hamilton, house prices jumped 32 percent in the year through July, while nationwide house-price inflation accelerated to 14 percent.Stronger Growth“House price inflation remains excessive and has become more broad-based across the regions, adding to concerns about financial stability,” Wheeler said. The bank was consulting on stronger macro-prudential measures that should help to mitigate financial system risks, he said.
Central bank's macro prudential policies function like band-aid. They treat the symptom rather than the disease.
Nonetheless to showcase more of where skyrocketing debt has gone into...
See? Central banks can make stocks go up FOREVER! (chart from chartrus.com)
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