Now Little wants to set interest rates for banks

Andrew Little seems to have adopted Rob Muldoon as his role model. Radio NZ reports:

Last week the Reserve Bank cut the Official Cash Rate from 2.5 percent to a new record low of 2.25 percent, but the major banks did not lower their mortgage by an equivalent amount.

Mr Little said he would not rule out legislating to make banks pass on the rate cuts.

This is economic stupidity to a degree not seen for several decades. Michael Cullen would be turning in his grave, if he was dead.

Having the Government decide what interest rates banks can set is madness.

Also you have to be economically retarded to think it is as simple as saying because the OCR dropped 0.25% on this day, retail rates must follow the next day.

For a start retail rates often move in advance of OCR movements, when they are well telegraphed. So you may get the retail rate drop before the OCR does.

Secondly the OCR is only one input into setting retail rates. There are many others, such as risk profiles etc.

What Andrew Little is effectively saying is Labour might legislate to set a permanent margin between the OCR and retail interest rates. This margin must be retained regardless of any other economic factors. It would be a good way to destabilise the financial markets.

For a while it looked liked Labour were getting credible. But this year they are just making policy up on the hoof, and promoting it regardless of sanity. Maybe they hope to emulate Donald Trump by saying crazy things and hope people don’t mind?

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