RBNZ policy maker says low interest rates protect workers

Bloomberg reports that a New Zealand central bank policy maker has pushed back against claims that record low interest rates are widening social inequalities by driving up house prices, saying they are also keeping people in work.

“The best social policy program ever invented was employment,” Peter Harris, an external member of the Reserve Bank’s Monetary Policy Committee, said . “Lower interest rates have also contributed to higher employment and more stable incomes.”

The RBNZ has been accused of contributing to a widening gap between rich and poor as its ultra-loose monetary policy helped drive a 24% surge in house prices over the past year, locking many first-time buyers out of the property market. 

Harris said low borrowing costs were just one of a number of factors behind the boom in asset prices, which was occurring globally. Higher rates could worsen inequality by denting confidence, driving up unemployment and raising mortgage servicing costs, Harris said.

“Are people better off out of a job and owning a house and paying a high interest rate on their mortgage, or are they better off when employment is reasonably robust, where incomes are stable and mortgage interest costs are lower?” he asked.

The RBNZ has cut its cash rate to 0.25% and embarked on quantitative easing to nurse the economy through the pandemic. Harris reiterated that the committee is in no rush to remove stimulus.