Latest / Best of Business / Liam Dann: NZ Herald Business Editor on the Reserve Bank cutting the Official Cash Rate

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Liam Dann: NZ Herald Business Editor on the Reserve Bank cutting the Official Cash Rate · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalks. Be follow this
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  Speaker 2: Preserve Bank has dropped the official cash right twenty five
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  Speaker 2: basis points to talk about. This is New Zealand Herald's
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  Speaker 2: business editor at largely Am Dan. Hello, Liam, Hey guys,
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  Speaker 2: I'm back. Yeah, you're back, and you and I and
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  Speaker 2: I think JD as well. We were picking that it
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  Speaker 2: would remain the status quo, but it wasn't. It dropped.
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  Speaker 2: So what are your first thoughts?
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  Speaker 3: Well, it's exciting. It's the first cut since March twenty twenty,
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  Speaker 3: so it's, you know, it's just something we haven't seen
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  Speaker 3: for a while. It's you know, it is it's a cut,
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  Speaker 3: and that means that they think that inflation's coming back
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  Speaker 3: under control, which is great. But there's a warning there.
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  Speaker 3: I mean, they it's not quite a sort of a
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  Speaker 3: declaring victory on inflation. They've warned that they they'll need
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  Speaker 3: to keep rates reasonably elevated for some time. They've sort
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  Speaker 3: of priced in in their forward forecast one more cut
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  Speaker 3: this year. I think markets will already be excited and
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  Speaker 3: be thinking we'll get one in October and November and
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  Speaker 3: we may do, but they just have got that little
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  Speaker 3: bit of warning there they I guess if inflation, if
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  Speaker 3: the data comes through and it looks sticky from here,
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  Speaker 3: and if it looks like the price of foods bouncing
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  Speaker 3: back up or something like that, they could just leave
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  Speaker 3: them on hold and it would still be reasonably elevated
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  Speaker 3: at five point twenty five. So some relief there for
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  Speaker 3: mortgage holders and for those struggling businesses. But you know,
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  Speaker 3: just just a little warning.
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  Speaker 2: I guess when you say relief for mortgage holders, so
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  Speaker 2: quart of percent, you know that's the the I guess
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  Speaker 2: that's the wholesale rate with the retail banks. Asbn QI
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  Speaker 2: bank have dropped their rates, do you know by how much?
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  Speaker 2: And what is likely to happen? Now? How quickly will
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  Speaker 2: the others follow?
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  Speaker 3: Yeah, I'm just trying to read it press release and
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  Speaker 3: tell you how much they've dropped them by that they're
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  Speaker 3: lowing their variable home rate by twenty five basis points
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  Speaker 3: at asb okay, and I'm not sure about all the
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  Speaker 3: different fixed terms just yet, but they're you know, they're
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  Speaker 3: coming down and in the way the retail banks are
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  Speaker 3: moving ahead of it. There's expectations and the markets will
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  Speaker 3: move ahead. So we'd already seen some mortgage rates come
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  Speaker 3: off a little bit. I guess, you know, it's not
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  Speaker 3: immediate relief for a lot of people because they'll be
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  Speaker 3: fixed at certain rates, but it provides a bit of
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  Speaker 3: a light at the end of the tunnel. The other
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  Speaker 3: thing I think that's probably quite ominous in it all
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  Speaker 3: is that there is the Reserve Bank has also had
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  Speaker 3: to admit that the economy is looking really tough. We
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  Speaker 3: knew that, you know, anyone out there doing business knew that.
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  Speaker 3: But they say, as well as the inflation tracking down,
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  Speaker 3: which that expected, the economy has materially weakened, and we're
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  Speaker 3: just looking at some of the numbers and it looks
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  Speaker 3: like they're saying that we could well be in another recession.
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  Speaker 3: So it probably never felt like we got out of
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  Speaker 3: recession to a lot of people, but there was a
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  Speaker 3: slight bounce for one quarter, and yep, we might be
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  Speaker 3: back in recession according to those numbers.
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  Speaker 4: So with the ocr going down by zero point two
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  Speaker 4: five percent, we know that it has an effect or
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  Speaker 4: an impact on more excuse me, mortgages, but will have
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  Speaker 4: any impact on the supermarket when we go to the supermarket.
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  Speaker 3: Well not not not especially, I mean it's really it's
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  Speaker 3: it should should. You know, the fact that we're getting
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  Speaker 3: a rate cut is a kind of a sign that
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  Speaker 3: they feel that inflation is coming under control. So that
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  Speaker 3: would mean that you'd expect that those big price spikes
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  Speaker 3: we've seen in the last couple of years should be
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  Speaker 3: behind us. But we're still we're still vulnerable to you know,
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  Speaker 3: international shocks and things like that. So they they have
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  Speaker 3: some control over the stuff that's happening inside the New
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  Speaker 3: Zealand economy. You know, it puts pressure on them businesses,
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  Speaker 3: puts pressure on the job market. Unemployment goes up, you're
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  Speaker 3: less likely to get a pay rise, all all that
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  Speaker 3: great stuff. And then it also means that businesses are
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  Speaker 3: less likely to pass on price increases. So that's all
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  Speaker 3: your domestic inflation, what the experts will call the non
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  Speaker 3: tradable stuff that's been quite elevated. That that comes down,
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  Speaker 3: and they can see that coming down. They have some
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  Speaker 3: control over it. What we don't have control over is
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  Speaker 3: oil and imported food, which is you know, global shipping
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  Speaker 3: supply chains, all that sort of stuff. So there's always
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  Speaker 3: a risk that if that bounces up, you know, at
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  Speaker 3: the wrong time, it could put pressure back on pricing
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  Speaker 3: and then therefore back on the reserve bank.
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  Speaker 2: Very good, hey, and just before you shoot liem, we
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  Speaker 2: really appreciate your time. But of course when mortgage rates
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  Speaker 2: interest rates are high, it's stink if you've got a
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  Speaker 2: big mortgage, But if you've got some money in the bank,
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  Speaker 2: if you've got a term deposit, it's it's often good.
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  Speaker 2: So given the OCRs drop by a court of percent,
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  Speaker 2: how will that affect term deposits.
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  Speaker 3: Yeah, well they'll they'll they'll come off too. I mean
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  Speaker 3: the banks make money on the margin between the term
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  Speaker 3: deposit and what they lend and borrow what they lend,
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  Speaker 3: and you know, effectively borrow at what it does do.
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  Speaker 3: Then that's why you hear people talking about the stock
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  Speaker 3: market going up when interest rates come down. You know,
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  Speaker 3: it's a big battle in the States over the US
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  Speaker 3: Federal Reserve and Wall Street. And as it gets less
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  Speaker 3: lucrative to put your money in the bank account, the
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  Speaker 3: stock market starts to look a bit better. So that's
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  Speaker 3: why I think this will probably be get a strong
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  Speaker 3: reaction on the local New Zealand market, which has been
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  Speaker 3: in the doldrums for a long time.
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  Speaker 2: Okay, Liam, thank you very much for your time mate.
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  Speaker 3: Good stuff.
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  Speaker 2: Cheers, guys, A nice chat with you, Liam Dan, New
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  Speaker 2: Zealand Herald's Business editor at large.
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