Latest / The SME Stream / Karen Silk: Reserve Bank Assistant Governor talks domestic inflation, OCR cuts

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Karen Silk: Reserve Bank Assistant Governor talks domestic inflation, OCR cuts · The SME Stream

• 0:00
  Speaker 1: Back to the Reserve Bank and the state of the economy.
• 0:01
  Speaker 1: Inflation partly under control, non tradea will still a problem.
• 0:04
  Speaker 1: Fifty point cuts another one likely in February, on our
• 0:07
  Speaker 1: way to a neutral number of about three percent by
• 0:09
  Speaker 1: the middle of next year. The RB's Associate Governor, Karen
• 0:12
  Speaker 1: Silk is with us.
• 0:13
  Speaker 2: Good morning, Good morning, mate.
• 0:15
  Speaker 1: I was surprised to us surprised. We had a lot
• 0:16
  Speaker 1: of things yesterday in the press conference, the seventy five points,
• 0:20
  Speaker 1: how little consideration was given to that.
• 0:25
  Speaker 2: Yeah, Mike, we consider all potential interest rate changes, but
• 0:29
  Speaker 2: we quickly settled on fifty basis cut being the most
• 0:33
  Speaker 2: appropriate fit at this point to support both our primary
• 0:38
  Speaker 2: inflation and secondary obviously our secondary objectives, and it's all
• 0:42
  Speaker 2: about charting a steady course of action and around what
• 0:48
  Speaker 2: best enables that. The fifty point basis recognizes that wonderful
• 0:55
  Speaker 2: news inflation headline inflation is back within the target range,
• 1:01
  Speaker 2: and we have a pretty good level of confidence about
• 1:04
  Speaker 2: that remaining there. But it's got under the over in
• 1:07
  Speaker 2: terms of how we've managed to get there. On the
• 1:10
  Speaker 2: one hand, you've got weak global growth, lower inflation off
• 1:15
  Speaker 2: shore that's leading to lower import prices, which is good news.
• 1:21
  Speaker 2: On the other hand, domestic inflation, that's well, that's coming down,
• 1:26
  Speaker 2: that's still sitting outside of the target range, and so
• 1:28
  Speaker 2: we're still you know, we're still looking for that to
• 1:30
  Speaker 2: come back at least to the top end of the range,
• 1:33
  Speaker 2: which is where it's historically sat.
• 1:36
  Speaker 1: Do you think it will because Transpower were given clearance
• 1:39
  Speaker 1: the other day to raise six billion dollars, all of
• 1:41
  Speaker 1: which will be inflationary. As long as that's going on,
• 1:44
  Speaker 1: then you get insurance, then you get the councils. As
• 1:46
  Speaker 1: long as that's going on, non tradable's going nowhere fast,
• 1:49
  Speaker 1: is it?
• 1:50
  Speaker 2: Yeah, Yeah, there's definitely a mix of things. There is
• 1:55
  Speaker 2: some persistence in domestic inflation from you know, what we
• 1:58
  Speaker 2: would recall what would refer to as items that are
• 2:03
  Speaker 2: a little less responsive to monetary policy, and you know,
• 2:09
  Speaker 2: but there are also some things in there that are
• 2:12
  Speaker 2: just slow moving, and you know, rents is a good
• 2:14
  Speaker 2: example of that. But as you say, there are things
• 2:18
  Speaker 2: like insurance and rates and so you know, those are
• 2:23
  Speaker 2: kind of things that will tend to also hold domestic
• 2:26
  Speaker 2: inflation towards that higher end of the range as well.
• 2:30
  Speaker 1: Four point twenty five fifty all things being equal coming
• 2:33
  Speaker 1: in February years suit, you got one hundred and twenty
• 2:34
  Speaker 1: five points to get rid of by the middle of
• 2:36
  Speaker 1: next year, So that's another fifteen to twenty five. Is
• 2:39
  Speaker 1: that roughly how it will play out.
• 2:41
  Speaker 2: Yeah. So what we've indicated in our track based on
• 2:45
  Speaker 2: the economic conditions that we're looking at today and our
• 2:48
  Speaker 2: forecast for next year, we're looking for more carts earlier
• 2:52
  Speaker 2: in the earlier part of next year, and then are
• 2:55
  Speaker 2: gradual tapering off over the years.
• 2:58
  Speaker 1: When you talk about productivity as you did yesterday, how
• 3:01
  Speaker 1: worried are you about the brain train?
• 3:04
  Speaker 2: Oh? Yeah, migrations definitely up.
• 3:10
  Speaker 1: And yeah, but the problem is they're all leaving and
• 3:14
  Speaker 1: fewer and fewer people are coming in, and the chances
• 3:16
  Speaker 1: are we're going to be going backwards. None of that
• 3:18
  Speaker 1: can be good for the economy, can it. Yeah.
• 3:21
  Speaker 2: So there's two things. You know, you'll have seen that
• 3:24
  Speaker 2: there's a we lowered our growth outlooks for the economy.
• 3:31
  Speaker 1: Is that because of that.
• 3:32
  Speaker 2: By the way, there's tooths there well, population growth, so
• 3:37
  Speaker 2: we lowered our estimates of future population growth sitting in there,
• 3:41
  Speaker 2: so that has some impact. The second impact to it
• 3:45
  Speaker 2: was is our assessment of productivity, and New Zealand's productivity
• 3:49
  Speaker 2: levels are low. We have businesses that tend to focus
• 3:53
  Speaker 2: on hiring labor rather than doing the upstrame investment in
• 3:59
  Speaker 2: capital that may you know that will help help us
• 4:03
  Speaker 2: do things quicker and faster. When you have low productivity levels,
• 4:07
  Speaker 2: your potential growth is lower. So that is what the
• 4:11
  Speaker 2: other driver.
• 4:12
  Speaker 1: Are those two things that you can't daw bone. You
• 4:14
  Speaker 1: wish you could, but you can't. So one is the productivity.
• 4:17
  Speaker 1: We've had this discussion for decades in this country. We
• 4:19
  Speaker 1: were just no good at it. The other one Adrian
• 4:21
  Speaker 1: reference getting money out of housing and into something else
• 4:23
  Speaker 1: that doesn't happen either. Are you frustrated by that?
• 4:28
  Speaker 2: I think most New Zealanders should be frustrated by that.
• 4:31
  Speaker 2: Mike productivity. There are things New Zealand can do about that.
• 4:36
  Speaker 2: A lot of those things don't fit within the resvents wheelhouse.
• 4:42
  Speaker 2: You know, there are certainly things that need to happen
• 4:45
  Speaker 2: to think about, improvement of access to capital, improvements in
• 4:52
  Speaker 2: willingness for businesses to adopt the pace of technology, faster,
• 4:57
  Speaker 2: investment in R and D, all those good things. Education
• 5:00
  Speaker 2: we need our education up. All of those things will
• 5:03
  Speaker 2: drive that's outside of our outside of our wheelhouse house prices, look,
• 5:10
  Speaker 2: interest rates do impact on that. We are forecasting a
• 5:14
  Speaker 2: bounce in house prices through next year off the back
• 5:19
  Speaker 2: of lower interest rates, but we're not excepting that to
• 5:22
  Speaker 2: be a significant growth story moving forward. There are things
• 5:28
  Speaker 2: that initiatives that the government's talking about which will increase
• 5:32
  Speaker 2: there creates the ability to impress the supply of housing.
• 5:35
  Speaker 2: We definitely need to see that to stop that cyclical case.
• 5:39
  Speaker 2: And on our side, the introduction of depth and some
• 5:43
  Speaker 2: ratios sure that over time helps move the cycle right
• 5:48
  Speaker 2: as well.
• 5:49
  Speaker 1: I've never talked to you before, so it's an appt
• 5:51
  Speaker 1: time to ask the question. Given that we've had three recessions,
• 5:54
  Speaker 1: most likely three recessions in two years, do you carry
• 5:57
  Speaker 1: personal responsibility and feel bad for what you've done to
• 6:00
  Speaker 1: this country?
• 6:02
  Speaker 2: Do I feel bad? But the best thing that we
• 6:06
  Speaker 2: can do is ensure that there's price stability in this economy.
• 6:09
  Speaker 2: So low stable inflation is the best thing that we
• 6:12
  Speaker 2: can do for economic wellbeing. Monetary policy has been proven
• 6:17
  Speaker 2: to be the best thing to support that, and that
• 6:21
  Speaker 2: is meant that we have had to undertake actions through
• 6:25
  Speaker 2: restriction of monetary policy to get ourselves back will to
• 6:28
  Speaker 2: get New Zealand back into a position we have low,
• 6:31
  Speaker 2: stable inflation.
• 6:33
  Speaker 1: You're giving me the reserve bank line, Karen, I'm talking
• 6:36
  Speaker 1: about all the other reserve banks that haven't had three recessions.
• 6:38
  Speaker 1: You guys have cocked it up worse than others. Does
• 6:40
  Speaker 1: that make you feel bad?
• 6:42
  Speaker 2: I don't think we have cocked it up, Mike. I
• 6:44
  Speaker 2: think what we've done is respond to the conditions that
• 6:47
  Speaker 2: we have. There are things that are different about this economy.
• 6:52
  Speaker 2: If you want to compare us to the US, the
• 6:54
  Speaker 2: big difference between New Zealand and the US is our
• 6:57
  Speaker 2: productivity levels results. We can do things. We can grow
• 7:02
  Speaker 2: without creating capacity pressures which lead to inflation. So we're
• 7:07
  Speaker 2: responding to the conditions that we have here in New Zealand.
• 7:10
  Speaker 1: Appreciate your time, Karen Silk, who is the Associate Governor
• 7:13
  Speaker 1: of the Reserving