Sir John Key Urges 100-Basis-Point Interest Rate Cut to Boost New Zealand Economy

In a bold move that has sent ripples through New Zealand's economic circles, former Prime Minister Sir John Key has called for a significant 100-basis-point cut to the official cash rate (OCR). Speaking at a Deloitte-hosted event in Auckland this week, Key, who is also a prominent business figure, argued that the current OCR of 3.25% is far too high and is stifling economic growth and business confidence.

Key addressed an audience of start-up founders, venture capitalists, and Auckland Mayor Wayne Brown, emphasizing that while there may be some inflation in food and fuel, there is no significant wage inflation to justify the current rate. He even suggested that a bit of inflation might be worth it to stimulate the economy.

“Interest rates are too high. I don’t want to sound like Donald Trump telling off Jerome Powell but they should be 100 basis points lower,” Key said, referencing the U.S. Federal Reserve Chair Jerome Powell.

Despite a 0.8% growth in the first quarter of this year, Key warned that the second quarter could see a negative GDP figure, citing weak performance in the manufacturing and services sectors, along with a subdued property market.

Key also criticized Adrian Orr, the former Reserve Bank Governor, for mismanaging monetary policy during his tenure, particularly for keeping rates too high for too long after the pandemic. He argued that the Reserve Bank's reliance on lagging indicators has led to delayed responses to economic shifts.

The Reserve Bank, which held the OCR at 3.25% on July 9, has hinted at resuming rate cuts later this year. Acting Governor Christian Hawkesby is expected to provide a clearer outlook in August, with financial markets currently pricing in a 70% chance of a 25-basis-point cut in August and a 50% chance of another cut by February 2026.

Key also raised concerns about New Zealand's approach to foreign investment, particularly the foreign buyer ban in the housing market, which he believes is deterring high-net-worth individuals from investing in the country. He argued that foreign capital is essential for New Zealand’s growth, especially in sectors like agriculture and technology.

“If I’m turning up with $100m, are you telling me the best I can do is rent a house?” Key asked, highlighting the need for policies that encourage foreign investment and positive population growth.

He also emphasized that the housing market is a key driver of economic confidence, noting that a recovery in house prices, fueled by lower rates, could help stimulate consumer spending and overall economic health.

With the median house price in Auckland falling 3.4% over the past year, Key acknowledged the challenges facing the sector. However, he expressed optimism that a return to more favorable conditions could be achieved through targeted policy interventions.

Despite his strong views on economic policy, Key also acknowledged the personal stakes involved, citing his son’s work as a developer and the current stagnation in the construction sector. He highlighted the struggles of tradespeople, many of whom are working reduced hours due to low demand, and argued that political success hinges on addressing these issues in key electorates like West Auckland.

Key also addressed his relationship with current Prime Minister Christopher Luxon, stating that while they are close and frequently discuss economic matters, he does not seek to influence Luxon’s leadership style or decisions.

“I’m pretty close to Chris, and I talk to him quite a lot. But I don’t try to be his father. I don’t try to tell him what to do,” Key said.

Looking ahead, Key expressed confidence that the current government, led by Luxon, will ultimately prevail as the economy begins to recover, though he stressed the importance of immediate action to stabilize the housing market and stimulate growth.