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Borrow more money, Govt told

Monday 28 Jan 2013 7:41 a.m.

An investment manager says the Government should borrow "as much money" as it can, and use it to fund infrastructure projects like a second Auckland Harbour crossing.

Mike Taylor, managing director of Pie Funds, made the comments on Firstline this morning.

"New Zealand interest rates are the lowest they've been for generations," says Mr Taylor.

"Globally, some countries are borrowing at rates never seen before. I think what the Government should do is launch infrastructure bonds, so you could borrow money for 10 years, or 30 years for specific projects, so you might want to say, we want to build a second harbour crossing, and you launch an infrastructure bond for that, and then you get overseas investors to fund the project.

"Maybe you even get the Chinese in to build it."

Record low interest rates mean it's a good time to borrow, says Mr Taylor, and invest in the market.

"The market's had a bit of a boost in the last six to 12 months really because interest rates have stayed low, and they're staying low now for quite a long period of time, which is forcing people who might have otherwise invested in bonds or left the money in the bank to have a look at equities.

"Equities are going to be paying quite a good dividend yield, so people are seeing equities as an attractive option versus what else is out there."

He dismisses talk a bubble could be forming.

"I know some commentators mentioned last week that the market might be forming a bubble, but for me I think that's quite a ridiculous statement to make because the New Zealand sharemarket has only perhaps regained levels last seen in 2007, so that's six years ago.

"If you really want to look to see an equity market bubble, you need to go to 1987, or other bubbles out there right now might have been the 2006 US housing bubble, or even the bond market might be forming a bit of a bubble now.

"But to say equity's a bubble, it is really pushing the envelope."

Mr Taylor doesn't expect interest rates to get any lower, without some external cause.

"I can't really see why the Reserve Bank would need to cut rates at the moment, but if they were cutting, it would probably mean there's something else going on in the world which would be negative – which would probably mean the market would be going down anyway."

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