Grosvenor Financial Services chief executive David Beattie said low interest rates and high inflation were the unspoken policies of Governments around the world, who were struggling with high debt levels.
The US Government is paying only 2% on its debt, which is the highest on a per capita basis in the world. By contrast, Greece is struggling because it is paying 7%. “If the US had to pay Greek interest rates, they’d be bankrupt… If you owe someone a lot of money, the best thing that can happen is they charge you a low interest rate, or forgive the debt, which isn’t going to happen.”
Reserve Banks would secretly want to encourage inflation beyond their targets, he said. “High inflation is good news if you’re a borrower… They’re not going to start tightening monetary policy any time soon. There’s too much debt.”
No country would want to be the first to increase its central bank rate because of the destructive effect that would have on the currency, he said.
Australia had realised how damaging having a higher cash rate had been and has recently cut to bring it down to New Zealand’s level, he said.
New Zealand’s currency was a casualty of the policies of other central banks around the world, Beattie said. “They don’t want their currencies appreciating. We, New Zealand and Australia, are victims of a currency war. Emerging markets are victims as well.”
He said that once the Reserve Bank had implemented its macroprudential tools, including loan-to-value restrictions, counter-cyclical capital buffers and sectoral capital requirements, there would be room for it to move on cutting interest rates.
“The Reserve Bank will keep interest rates low and bank rates may even fall further.”
He said it would be misguided to hike the rate to try to counter the strong property market. “[The high dollar] is killing the New Zealand and Australian manufacturing sectors.”
