Scott Alastair: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeScott Alastair: Oral Questions — Questions to Ministers[Sitting date: 30 October 2014. Volume:701;Page:419. Text is incorporated into the Bound Volume.]1.ALASTAIR SCOTT (National—Wairarapa)to the Minister of Finance: What reports has he received on the economy particularly on the direction of interest rates and inflation?Hon BILL ENGLISH (Minister of Finance):This morning the Reserve Bank Governor conducted his regular review of the official cash rate which he confirmed will remain at 3.5 percent which is low by historical standards. As I noted in the House yesterday consumer price inflation at 1 percent is right at the bottom of the Reserve Bank’s target band despite strong economic growth and real wage growth. The governor noted that New Zealand’s economic growth has been faster than trend over 2014 which has helped to reduce unemployment and added to demands on productive capacity. He added that low-interest rates construction sector activity and high net immigration continued to support economic growth. He said there will be a period of assessment before any further policy adjustment which we think means that it will be some time before he raises the official cash rate.Alastair Scott: What observations did the Reserve Bank Governor make about inflation and the outlook for the cost of living?Hon BILL ENGLISH: The governor noted that the consumer price inflation remained modest right at the bottom of the bank’s target band at 1 percent. The factors contributing to low inflation include subdued wage inflation and well-anchored inflation expectations because we have a robust policy targets agreement with the Reserve Bank Governor. He also referred to weak global inflation falls in oil prices and the high New Zealand dollar. He pointed out that house price inflation has also fallen significantly since late 2013 partly due to interest rate increases and partly due to loan-to-value ratio restrictions. He noted that inflation remains low despite stronger growth.Alastair Scott: How are the current low-interest environment and the growing economy being reflected in business confidence and investment?Hon BILL ENGLISH: I think the dawning realisation that interest rates will not reach the peaks that they did in 2008—in fact they could peak at a much lower rate than the 10 percent they reached then—is good for business confidence. ANZ reported that business confidence rebounded in October above its long-run average. A net 27 percent of firms are optimistic about their general prospects up 14 points on September which may be related to the outcome of the general election. These expectations are consistent with solid growth good employment and investment intentions among businesses. Statistics New Zealand numbers show that business investment increased by 7.7 percent in the year to June led by investment in construction and infrastructure.Alastair Scott: How do current interest rates compare with historical levels and how is this being reflected in mortgage and business lending rates?Hon BILL ENGLISH: It is usually the case that as the economy goes through a growth cycle interest rates rise considerably. The Government has been working hard to do what it can to ensure that interest rates in this economic cycle remain lower for longer because that would be good for households and businesses and prevent a build-up of imbalances. We are focused on tight fiscal policy which has enabled interest rates to stay lower for longer and we have also taken an active approach to sorting out the housing market which has been one of the biggest drivers of mortgage rates in previous cycles. Average residential floating mortgage rates remain quite low at around 6.7 percent in this cycle and the average business lending rate remains below 6 percent. Back in 2008 these equivalent rates were home mortgage rates of 11 percent rather than 6.7 percent and business lending rates were 9.2 percent rather than the current 6 percent.Rt Hon Winston Peters: How do New Zealand’s interest rates compare with those of Japan China the UK Europe and the US?Hon BILL ENGLISH: I know that the member does not like good news but the good news is that New Zealand did not have a two decade recession like Japan so our interest rates are higher. Our interest rates are a bit higher than the UK which is a place where real incomes were cut by up to 10 percent as a result of the recession. They are a bit higher than the US where the housing market collapsed and middle-class incomes have not moved for 10 years so it is not a bad problem to have.