15 June 2007
NEWSLETTER: KeyNotes No 12
The soaring Kiwi
On June 7, just three weeks after the Budget, the Reserve Bank raised interest rates for the third time in a row. And for the third time in a row it said that growing government spending is fuelling inflation. Thanks to the Budget and Labour's careless spending, homeowners and businesses will face higher interest rates for longer.
In response to this jump in interest rates, the NZ dollar soared and the Reserve Bank intervened in the currency market for the first time since 1985. This was a surprise move, and most commentators are still trying to figure out exactly what the bank is up to. Its intervention might have a short term effect on the currency, but in the longer term, I can't see it making much difference.
The problem is that our interest rates are higher than the rest of the developed world, and people overseas are buying NZ dollars to take advantage of this. Intervention in the currency market won't change that. The dollar won't come down until interest rates come down, and interest rates won't come down until inflation does.
The government should be playing its part to lower inflation by spending carefully and sensibly where it has the most benefit, rather than where it can buy the most votes. But the next election is less than eighteen months away and Labour will spend up big to stay in power.
Dr Bollard has already warned politicians that the election will be fought in the highest interest rate environment for many years, so Kiwis had better get used to mortgage rates going up. Under Labour, they haven't got anywhere else to go.
Click here to listen to my comments on the economy and interest rates in an interview with Neil Collins on Radio Dunedin.
Fieldays and Rural Issues
It was a privilege to open Fieldays at Mystery Creek this week, and spend a few days with our rural MPs talking to farmers about what's going on in the industry. Farming is going through some extraordinary times right now. Dairy farmers are buoyed by high international milk prices, but sheep and beef farmers are really battling with the exchange rate, the drought on the North Island East Coast, and UK supermarkets playing games with kiwi lamb.
Farmers have some of the toughest jobs in our economy. There are so many things beyond their control that they have to juggle - from the weather to the price of electricity, from labour shortages to ACC costs. The government needs to play its part by creating certainty, reducing compliance costs, and providing the right conditions for productivity growth and innovation.
Labour simply doesn't understand the rural sector and the problems its policies have caused. National does.
At Fieldays I launched National's Rural Issues Discussion Paper. This will form the basis of our agricultural policy at the next election and we'd like to hear your thoughts on it. Visit www.national.org.nz/ruralissues to download the paper and if you'd like to comment on it, please email our Agriculture Spokesman email@example.com.
Click here to listen to my radio interview live from Fieldays with Jamie MacKay on Hokonui Gold's Farming Show.
West Coast visit
Sometimes it seems that politicians spend a little too much time in Wellington or overseas, and not enough time finding out what's happening in provincial New Zealand, so it was great to visit the West Coast last week and see what's going on over there.
Watch my video diary from Hokitika here.
Joining the conversation
It's heartening to see how much interest there is in what we are up to and it's good to learn about the issues that concern you. Your contributions help me get a feel for how we are going and where we can do better.
I'll be regularly responding via video to your comments on the website and on National's Youtube channel, and you can click here to watch the first of these.
John Key MPLeader of the National PartyTweet