DB wasn't your problem!

29 June 2003

In your last issue, Simon Hempseed expressed delight that I am no longer guiding monetary policy in New Zealand because, he said, I increased interest rates whenever it looked like the growth in property prices was higher than general inflation.  And that, he felt, kept an unnecessarily tight rein on property prices.

That is completely wrong.  I increased interest rates whenever inflation measured by the CPI looked likely to go above the target agreed with the Government of the day, and I reduced interest rates whenever inflation was falling towards the bottom of the target.

So interest rates went both up and down while I was Governor of the Reserve Bank, as could be expected.  House prices were simply one of many factors affecting the CPI, though occasionally a significant factor.

Mr Hempseed also said my job was to encourage New Zealanders to save more.  Wrong again.  That was certainly not part of my role, though I certainly did from time to time draw attention to the fact that, as Mr Hempseed himself acknowledged, New Zealanders are very reluctant savers and very enthusiastic borrowers.

It is quite clear that the present Governor is running monetary policy on essentially the same basis as I did.

For the sake of the record, I have never had anything against owning property, residential or otherwise, and have owned my own home for almost my entire adult life.  The myth that I don’t favour property ownership got started when I told a joke to a Rotary District conference back in 1989 and, try as I might, I have not been able to debunk that myth since, though I tried hard to do so at a real estate conference some years ago (the speech can be found on my website: www.donbrash.com). That said, I have also pointed out on many occasions that the notion that highly-geared property investment is totally without risk is also a myth, as plenty of property owners in Japan and Germany, and even a few in New Zealand, have discovered to their cost.

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