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27
JUL 10

OCR Neutral at 5%?




http://www.interest.co.nz/opinion/opinion-why-moving-ocr-5-wont-hurt-our-economic-recovery

I think the strange notion of a fixed “neutral” rate was pretty much dealt to on the thread.


Taking an overview might be worth a minute. Yes we need to resist inflation, yes we need a currency that reflects trade performance for any persistent economic rebalancing – the OCR simply cannot deliver that outcome: one or the other but not both.


Headline inflation has been restrained by the OCR at the cost of decimating the external sector, domestic inflation remained outside the policy band up to the point when most recognised the global financial crisis was in full swing, only at that point did the domestic inflationary pressure fall.


The OCR alone is not up to the task – that is clearly the new normal. More policy options are necessary.


Lots of discussion goes on here on what those options might be but those in power need to get on to the case – there is not much time.
 


tags: ocr, economic recovery, neutral rate
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