Monday 14th of March 2005

The Reserve Bank's decision to raise the Official Cash Rate last week has been designed to slow the economy down, but I wonder if it may also speed the election process up.

In the wake of the RB's move rates on variable home loans are going to hit 9%. Westpac, which is normally the first to move and the bank with the highest rates, has already put its floating rate up to 9.05%.

The other banks haven't done anything yet, but they will undoubtedly follow this week.

What's striking is that 9%-plus interest rates are expensive and they must have a big impact on borrowers. Whatever way you look at it 9% is a big number. If you are getting 9% on a deposit you think that is a good return, conversely to pay 9% to borrow money isn't cheap.

Why would the odds of an early election shorten? If you think back to the recent Australian and US elections a key factor of success, particularly for Howard, was how they appealed to the so-called mortgage belt.

In New Zealand this group is well served with cheap two-year home loans but these favourable rates won't last forever. Once the impact of higher interest rates flows through to borrowers it will hit them hard.

These traditional blue collar, middle-class New Zealanders won't be happy.

Throw into the mix some politics (Act in disarray, National trying to make up its mind what it stands for) and you have a good case for an early election.

So what are the odds? I'm not sure; I think they are still long, but a bit shorter than before.