This is probably a stupid question but… So I understand how the government uses the OCR to increase interest rates and drive inflation down by reducing the borrowing in an economy. What I’ve been thinking about recently though is could there be a mechanism whereby instead of the interest rate increase being solely at the cost of the borrower (rate increases > you pay more interest on the same total borrowing > total cost of borrowing over time increases) that some ‘minimum principal’ payment rate was increased instead.
So the idea being that if the OCR was 0.25 in 2020 and is 5.5 now, could that 5.25% increase (and thereby the decrease in overall borrowing) have been achieved through a minimum principal pay down rate instead. Borrowers are still paying more and therefore borrowing less, just that the banks and reserve bank don’t have a greater take and new Zealanders end up with less total borrowing.
I like the idea where you have a compulsory Kiwisaver-type scheme which earners have to contribute to. So when you want to reduce spending in the economy, you simply increase the rate that earners have to put into the scheme.
People have less money in their pocket to spend, thereby reducing demand in the economy in a deflationary way.
But importantly, they get to keep the money that is invested, but access to it just gets deferred until they retire.