Latest / The SME Stream / Brad Olsen: Infometrics Principal Economist on the Reserve Bank cutting the OCR by 50 basis points

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Brad Olsen: Infometrics Principal Economist on the Reserve Bank cutting the OCR by 50 basis points · The SME Stream

• 0:00
  Speaker 1: Good afternoon.
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  Speaker 2: Banks have immediately started cutting their mortgage rates after the
• 0:03
  Speaker 2: Reserve Bank today cut the official cash rate by fifty
• 0:06
  Speaker 2: basis points, so the ocr is now sitting at four
• 0:09
  Speaker 2: point two five percent. The Reserve Bank Governor Adrian Or
• 0:12
  Speaker 2: acknowledged it's been a tough time for New Zealand.
• 0:14
  Speaker 1: Terra has you know, we've been doing it tough over
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  Speaker 1: the last couple of years. We've been part responsible for that.
• 0:23
  Speaker 1: But the higher interest rate, you know, inflation is evil.
• 0:28
  Speaker 1: We have been making sure we can squeeze it out
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  Speaker 1: of the economy. I know it's been challenging for many
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  Speaker 1: many people and will continue to be so overcoming months.
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  Speaker 2: Infamatrix principal economist Brad Olson's with me. Now, Hey, Brad,
• 0:40
  Speaker 2: good evening. Are you surprised they didn't think about seventy
• 0:42
  Speaker 2: five basis point cut at all.
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  Speaker 3: I'm a little bit surprised they didn't really consider anything
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  Speaker 3: apart from fifty. You know, the governor highlighted in his
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  Speaker 3: press conference that they sort of thought fifty was the
• 0:53
  Speaker 3: right place, and so they didn't really toss up doing
• 0:54
  Speaker 3: anything different. You know, they didn't toss up going smaller
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  Speaker 3: at twenty five. They didn't toss up going larger at
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  Speaker 3: seventy five, So fairly confident view from the Reserve Bank
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  Speaker 3: that fifty was the right move. And look, I don't
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  Speaker 3: think anyone will disagree that it's a healthy decline that's
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  Speaker 3: coming through. The question I think for now is we're
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  Speaker 3: too next and how quickly there's now a three month
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  Speaker 3: break before the Reserve Bank meets again. The Governor sort
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  Speaker 3: of seemed to imply or certainly didn't shoot down the
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  Speaker 3: view that fifty basis points in February almost seems to
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  Speaker 3: be the baseline case or the live option. But a
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  Speaker 3: lot of economic forecast is wondering when do we get
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  Speaker 3: back to those sort of more normal considered steps, given
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  Speaker 3: the economy is already starting to show some early signs
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  Speaker 3: of turning around. So right move today, very sensible sort
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  Speaker 3: of pick and sort of but looking into the future
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  Speaker 3: a bit more uncertain.
• 1:41
  Speaker 2: Yeah, what makes you think that he's considering a fifty
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  Speaker 2: because it sounded like a twenty five to me in February.
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  Speaker 3: Well, he sort of highlighted that actually, you know, when
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  Speaker 3: he looked through the numbers, he sort of said fifty
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  Speaker 3: felt right, and particularly considering the forward track that leaves
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  Speaker 3: the door open for another fifty point cut. I mean
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  Speaker 3: that that was his own words, so I think he
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  Speaker 3: sort of opened They've got options, and that is important
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  Speaker 3: because for such a long time it sort of felt
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  Speaker 3: like we were always sort of on the back foot.
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  Speaker 3: I think the Reserve Banks sort of wrestled back a
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  Speaker 3: bit more control here, which is important. Inflation are now
• 2:13
  Speaker 3: well under control, the unemployment rate increasing, but not quite
• 2:17
  Speaker 3: as steeply as might have been fared again, interest rates
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  Speaker 3: coming down, some early signs that spending is turning around,
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  Speaker 3: so all of that will be encouraging for the bank.
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  Speaker 3: But also, you know, they've cut just how much potential
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  Speaker 3: they think is out there in the economy in the future.
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  Speaker 3: So still some pretty difficult times and people won't immediately
• 2:35
  Speaker 3: refix onto those lower mortgage rates. But again looking up
• 2:38
  Speaker 3: over time.
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  Speaker 2: Brad Kiwi Bank's argument is that at four point twenty five,
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  Speaker 2: it's still restrictive, and even the Reserve Banks governor said
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  Speaker 2: that himself today it's still a restrictive level. He's still
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  Speaker 2: strangling the economy to an extent. Kee We Bank reckons
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  Speaker 2: you have to get to about three point five before
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  Speaker 2: it's neutral. What's the argument for keeping us in a
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  Speaker 2: restrictive setting when we are so stuffed at the moment.
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  Speaker 3: You know, I think the Reserve Bank is sort of
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  Speaker 3: also pretty cool, And they did outline in their statement
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  Speaker 3: today as well they're sort of worry about some of
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  Speaker 3: those inflationary pressures that could persist, could spike back up,
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  Speaker 3: but more importantly some of that sort of more medium
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  Speaker 3: term stuff where you don't sort of want to be
• 3:12
  Speaker 3: sort of going through. And we have seen this from
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  Speaker 3: the Reserve Bank and you know, years gone past, where
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  Speaker 3: they sort of either cut too much, raised too much
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  Speaker 3: and then have to reverse out. But I think that
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  Speaker 3: the big question, right is that if they go by
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  Speaker 3: fifty again in February, that only leaves them maybe one
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  Speaker 3: more twenty five basis point cut. And I get the
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  Speaker 3: thing for that we're looking at at the moment as
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  Speaker 3: economists is that fifty is still like a bigger move.
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  Speaker 3: And so to go from sort of you know, fifty
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  Speaker 3: then to twenty five then to just nothing would be
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  Speaker 3: quite an abrupt maybe end too it. So again that
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  Speaker 3: sort of question is does the Reserve Bank here if
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  Speaker 3: there's an abrupt end, or do they say, actually, look,
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  Speaker 3: we've got interest rates back to where we want them
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  Speaker 3: to be. And so if it's a fifty and then done,
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  Speaker 3: maybe that's it.
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  Speaker 2: Okay, well, Brad, thanks very much. Appreciate a Brad Awsome
• 3:57
  Speaker 2: Informetrix Principle Economist