Double-Edged NZ World First

Kiwi homeowners won’t like it but the Wall St Journal is predicting New Zealand will be the first developed nation in the world to raise interest rates since the Global Financial Crisis hit in 2008. Good economic news is behind the anticipated hike in the official cash rate (OCR), the de facto benchmark for bank lending. But what shocked the venerable business newspaper was not the news itself but the way it was imparted.

Reserve Bank Governor Graham Wheeler, in his OCR statement, was plain spoken – rate hikes “will likely be required next year”. American markets are not used to such bluntness. They are accustomed to what the WSJ calls “the Kremlinology of central bank statements”.

To put this into context, when a US senator told former Federal Reserve chairman Alan Greenspan that he understood what he said, the famously gnomic Greenspan replied: “Then I must have misspoken”. Former Reserve Bank Governor Don Brash explains that in his time the job entailed veiled hints that only market experts could understand.

But times are changing. And just as New Zealand was the first to introduce inflation targeting and the first to publish its reasons for a rate hike, it is again the first to explain its reasons and its future actions in language that even a man or woman on the street can understand.