Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on why the Reserve Bank left the OCR on hold

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Jenee Tibshraeny: NZ Herald Wellington business editor on why the Reserve Bank left the OCR on hold · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk sed be
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  Speaker 2: It is twenty three minutes two seven. So the Reserve
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  Speaker 2: Bank's chief economist says higher mortgage rates have helped keep
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  Speaker 2: the official cash rate on hold. Paul Conway is on
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  Speaker 2: the committee and he was one of the three committee
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  Speaker 2: members who voted not to lift the rate, saying that
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  Speaker 2: the market was doing some of the work for the
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  Speaker 2: Central Bank. So the New Zealand Herald's Wellington Business editor today, Timbersani,
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  Speaker 2: has been looking into this to see if he's right
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  Speaker 2: and joins us now today.
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  Speaker 3: Hello, good day, Andrew.
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  Speaker 2: But a breathing space for the Reserve Bank reckons Paul Conway,
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  Speaker 2: do you.
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  Speaker 3: Look. I think Paul Conway makes a good point. I
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  Speaker 3: spoke to him recently after the Reserve Bank reviewed the OCR,
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  Speaker 3: and as you said, he was one of the three
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  Speaker 3: committee members who decided who believed it was best to
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  Speaker 3: keep the OCR on hold. He said one of the
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  Speaker 3: main reasons behind this was that financial markets or financial
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  Speaker 3: conditions have actually tightened quite a bit since the end
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  Speaker 3: of last year. So people will notice that even though
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  Speaker 3: the OCR has been at two point twenty five percent
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  Speaker 3: for some time. Mortgage rates have gone up a wee bit.
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  Speaker 3: So with the two year fixed rate, for example, currently
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  Speaker 3: you'd be paying about five point two percent, but at
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  Speaker 3: the end of last year you might have been able
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  Speaker 3: to get a two year fixed rate for four point
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  Speaker 3: five percent. So markets have been looking at central banks
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  Speaker 3: like the Reserve Bank of New Zealand and saying that
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  Speaker 3: they're going to hike interest rates. There's inflation on the
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  Speaker 3: horizon because of the conflict in the Middle East, so
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  Speaker 3: markets have been pricing in interest rate hikes, and when
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  Speaker 3: you go to the bank to get a mortgage or
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  Speaker 3: term deposit, you are actually, you know, paying a higher
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  Speaker 3: interest rate or receiving more for your term deposit. So
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  Speaker 3: Paul Conway said that that has actually, you know, given
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  Speaker 3: the Reserve Bank some some breathing space. You know that
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  Speaker 3: there is a bit of inflation, some inflationary pressures, but
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  Speaker 3: those interest rates that you actually pay are quite a
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  Speaker 3: bit above their trough.
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  Speaker 2: Yeah, I think there's too many people who automatically believe
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  Speaker 2: that the official cash rate interest rates are absolutely and
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  Speaker 2: fundamentally linked to what you get from retail interest rates.
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  Speaker 2: But they never have and they never will be there.
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  Speaker 2: The banks are doing their own work and predicting what
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  Speaker 2: might happen.
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  Speaker 3: Well, you know that that's the thing. So floating mortgage
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  Speaker 3: rates and short term interest rates they correlate more closely
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  Speaker 3: with the OCR, whereas those two year rates and further
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  Speaker 3: out ones they're more influenced by wholesale money markets, and
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  Speaker 3: those money markets influenced by what traders think will happen
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  Speaker 3: to inflation. And you know, and that's in New Zealand
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  Speaker 3: and also around the world. You know, those wholesale money
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  Speaker 3: markets are international, so there are a few factors you know,
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  Speaker 3: going in And you're right, people, we always look at
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  Speaker 3: the OCR and go, oh, isn't it good? It's at
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  Speaker 3: two point two five percent. Well, you know, you go
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  Speaker 3: into the street anywhere and it doesn't exactly feel like
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  Speaker 3: the environment to stimilitary. Things feel pretty flat. So that's
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  Speaker 3: because the rates you actually pay at the bank are
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  Speaker 3: quite a bit higher.
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  Speaker 2: You see the blackboard at the bank and it's got
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  Speaker 2: a five minute and you go huh, and there we go. So,
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  Speaker 2: Mester Cole, isn't this amazing with a new reserve bank
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  Speaker 2: transparency that we can have this sort of debate and
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  Speaker 2: we can look at this sort of analysis. I think
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  Speaker 2: it's brilliant. So did mister Conway give any indication on
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  Speaker 2: when he expects the cash rate to rise?
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  Speaker 3: Well, so interestingly, he said to me, while the half
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  Speaker 3: of the committee wanted to keep the OCR on hold,
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  Speaker 3: half wanted to hike it. They and they ended up
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  Speaker 3: keeping it on hold because that's what the governor wanted
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  Speaker 3: to do. So he said, while they disagreed on that,
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  Speaker 3: what they did agree on was the reserve banks sort
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  Speaker 3: of forward track where it thinks the OCR might go.
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  Speaker 3: And so where it reckons is another two or three
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  Speaker 3: hikes this year. So currently two point two five percent
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  Speaker 3: might get up to three percent, and that first hike
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  Speaker 3: might be as early as July. So you know, that's
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  Speaker 3: something they did agree on. But you know, these things
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  Speaker 3: keep changing, Andrew, and like the the environment is so
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  Speaker 3: dynamic at the moment in terms of the conflict of
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  Speaker 3: the Middle East and the impact that's having on fuel
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  Speaker 3: prices and broader inflation. But the thing that Paul, yeah,
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  Speaker 3: the thing that Paul Conway's looking out for is, you know,
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  Speaker 3: will those inflation become embedded in the economy, Will it
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  Speaker 3: sort of trickle through high business put prices up, people
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  Speaker 3: demand higher wages and actually get them, or is the
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  Speaker 3: sluggishness of the economy actually holding back that inflation. You know,
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  Speaker 3: businesses can't really put their prices up if there's no
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  Speaker 3: one there to buy the stuff. So he's like, it's
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  Speaker 3: an interesting situation for them because there are two quite
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  Speaker 3: different forces at play.
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  Speaker 2: And you would never have been able to write this
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  Speaker 2: without the new transparency I just mentioned it. I think
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  Speaker 2: it's brilliant. How do you think it is?
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  Speaker 3: Well, I think it is good. So now we know
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  Speaker 3: of the six members, we know how they voted. But
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  Speaker 3: you know, in terms of the quarterly Monetary Policy Statement,
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  Speaker 3: it's still really felsome. And you know, it always it
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  Speaker 3: always was and it continues to be. But now we
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  Speaker 3: just have a we have more insights, so we know
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  Speaker 3: it's quite a big difference if we know it split,
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  Speaker 3: you know, halfway down the line three three or whatever.
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  Speaker 3: So it seems like it seems like a real positive thing.
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  Speaker 3: And I think the Governor did well when she talked
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  Speaker 3: about this, you know, because she had to talk on
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  Speaker 3: behalf of the committee when she talked about what's happening
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  Speaker 3: with the economy. But we do know that you know
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  Speaker 3: her view was to keep it on hold, so I
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  Speaker 3: think it was a bit of a tough tightrope that
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  Speaker 3: she had to walk explaining, explaining it all and not
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  Speaker 3: confusing the market, which I don't think the Reserve Bank
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  Speaker 3: did so so thumbs up from me.
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  Speaker 2: Excellent stuff and I thank you so much. Denae Temperatney,
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  Speaker 2: who of course is New Zealand Herald's Wellings and Business editor.
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