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Aardvark Daily

New Zealand's longest-running online daily news and commentary publication, now in its 25th year. The opinion pieces presented here are not purported to be fact but reasonable effort is made to ensure accuracy.

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10 August 2018

The Kiwi dollar has taken a bit of a tumble on news that the Reserve Bank will keep interest rates low for at least the next 18 months.

As someone who earns all his income in US dollars, I'm loving this.

As someone who is a techie at heart and needs to spend a fair amount on imported techware, I'm not so happy.

The reality is that, if the forecasts are correct, the dollar will continue to decline in value against our key trading partners, especially the ones that make all the cool tech. This means that now would probably be a good time to buy tech stuff that you may have been thinking about for a while.

Chances are that in another 6-12 months time, most of our tech will be noticeably more expensive -- because we generally have to pay in US dollars when importing the stuff.

Of course if you're planning on buying computer-related stuff then the decision of "when to buy" becomes a little more complex.

RAM and GPU prices have been high for quite some time. Most analysts are predicting an over-supply of RAM and GPUs however, in about 6 months time. Oversupply means lower prices.

The real question is therefore: will the drop in prices more than offset the fall in the kiwi currency?

Since these are not circles I am familiar with, my answer has to be "I have no bleeding idea".

However, stuff like TV sets, smartphones and such are almost certainly going to cost more in the near future.

Is a weaker NZ dollar going to help or hinder the nation's economy as a whole?

Well generally, a low domestic currency tends to boost the local economy by turning our export earnings into more liquidity within the borders of NZ. However, it does come with inflationary pressures due to the inevitably rising price of petrol and other imports. The RBNZ has indicated that they're not too worried if the economy drifts outside the normal range for inflation so I see interesting times ahead.

Although the Reserve Bank may be keeping a lid on interest rates, I wonder what will happen to the actual rates borrowers (such as mortgage holders) will pay. It should be remembered that much of the money borrowed on the domestic market has its origins outside NZ and therefore a weaker NZ dollar puts pressure on lenders to hike rates regardless of the Reserve Bank's own decrees.

I can see why the government is keen to maintain record low interest rates - because a sudden upspike in those rates would spell disaster for NZ's already shambolic housing market. Huge numbers of home owners with barely serviceable mortgages would find themselves unable to keep up with the payments and that could send property values crashing through forced sales.

Given that so much of NZ's investment capital is tied up in property, a collapse of that market would produce shock waves that would rock the nation to its very core.

I fear that very soon it will become a perilously difficult balancing act -- trying to keep interest rates low in an economy that starts to feel the inflationary pressure of a weaker domestic currency.

Pay down your debt as fast as you can, buy the techie stuff you've been thinking of getting and prepare for the worst. With luck, you'll simply be pleasantly relieved when nothing happens.

What do readers think? Are we headed for a bumpy economic future?

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