Hayes John: Questions for Oral Answer — Questions to MinistersText is incorporated into the Bound VolumeHayes John: Questions for Oral Answer — Questions to Ministers[Sitting date: 30 January 2014. Volume:696;Page:15691. Text is incorporated into the Bound Volume.]1.JOHN HAYES (National—Wairarapa) to theMinister of Finance: What reports has he received on the outlook for the economy this year—and particularly for monetary policy and interest rates?Hon BILL ENGLISH (Minister of Finance): There are a number of reports indicating there is an improved outlook for jobs and incomes. For instance Treasury forecasts last month show economic growth reaching 3.6 percent in 2015 and signalled that 125000 more New Zealanders will be in jobs over the next 4 years. I have also seen reports predicting that interest rates will rise somewhat this year as growth picks up and inflation moves towards the mid-point of the Reserve Bank’s 1 to 3 percent target range. Annual inflation remains quite low at 1.6 percent—certainly well below the 5 percent that inflation reached in 2008. However inflation is expected to pick up as the economy gains momentum and that will require interest rates to rise somewhat over the course of the year.John Hayes: What did the Reserve Bank Governor say this morning about his expected path for the economy and interest rates over the next year or so?Hon BILL ENGLISH: The governor this morning confirmed the official cash rate at 2.5 percent. It is a historic low. He noted that the economic expansion has considerable momentum with commodity prices high business confidence strong and inward migration on the rise. There appeared to have been some moderation in the housing market in recent months but other inflation indicators have been rising. In this environment the governor said that there is a need for interest rates to return to more normal levels and the Reserve Bank expects to start this adjustment soon. I think he has indicated pretty clearly that New Zealanders should prepare for some increase in interest rates over the next few months.John Hayes: How do current interest rate levels compare with the position inherited by this Government in 2008 and how has this benefited New Zealand families?Hon BILL ENGLISH: The position is considerably different from what it was in 2008. The Reserve Bank’s official cash rate is currently 2.5 percent and floating home mortgage rates are at 50-year lows at less than 6 percent. In mid-2008 the cash rate peaked at 8.5 percent and floating mortgage rates were approaching 11 percent rather than below 6 percent as they are now. For a family with a $200000 mortgage the significant fall over this time saves them about $200 a week in interest payments. New Zealanders can be assured that mortgage rates are not expected to return to the high levels seen in 2008.John Hayes: What measures has the Government taken to help ensure interest rates have stayed lower for longer and to prevent a repeat of the credit cycle issue seen in New Zealand in the mid to late-2000s?Hon BILL ENGLISH: The Government can have some influence through its own policies on the interest rates track. It is important that we avoid repeating the mistakes of the mid-2000s when a doubling in house prices and large increases in Government spending put pressure on interest rates forcing them up and also forcing up exchange rates. So the Government has moved to get its spending under control help businesses become more competitive and importantly we have moved to increase the flexibility of the supply of land for housing in order to address the issue of fast rising house prices. These measures all help to reduce pressure on interest rates keeping them lower for longer and helping to rebalance the economy.