The visible hand in economics

No emergency cut was the right choice

Posted on: October 16, 2008

I was surprised at the time, but not doing an emergency cut appears to have been the right choice – go RBNZ 😉

I get this impression from here:

Source (NBNZ)

I saw 90 day bill rates rise to 8.1% (from 7.7%) just because of international funding pressures on short-term credit – at least thats what I thought it was. As a result, I felt a 50 basis point emergency cut could be justified. However, the international cuts had already brought us down to about 7.6% that day, and now we are at around 7.1%. This implies to me that the 100 basis points of cuts that are expected next Thursday are also expected to have some bang for their buck – crazy.

So the Bank is right at my expense again, I know they are smarter than me, but I swear they are luckier as well 😉

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3 Responses to "No emergency cut was the right choice"

I did well shorting that one on iPredict. Could not see the sense in the early cut.

“I did well shorting that one on iPredict. Could not see the sense in the early cut.”

It appeared that a cut would be consistent with the Bank’s goal for a certain interest rate from September – however, of course the rest of the world cutting interest rates had a flow on effect, fundamentally lowering the interest rate we had to set here to attract capital anyways. As a result, there was no need for a cut here. Obvious now it seems 😛

[…] no emergency cut was the right choice […]

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