Latest / Best of Business / Brad Olsen: Infometrics principal economist on what we can expect from the first OCR update of 2025

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Brad Olsen: Infometrics principal economist on what we can expect from the first OCR update of 2025 · Best of Business

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  Speaker 1: You're listening to a podcast from newstalk SEDB. Follow this
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  Speaker 2: Six fourteen News Talk said b Adrian and All's first
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  Speaker 2: outing for the year tomorrow, just one more sleep until
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  Speaker 2: where it's pretty much expected to get a fifty basis
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  Speaker 2: point cut. So the Reserve Bank the decision tomorrow. Brad
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  Speaker 2: Olson is the Informetric's principal economist, Brad Good evening. Good evening,
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  Speaker 2: So the fifty basis point camp is growing by the
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  Speaker 2: second ahead of the big day tomorrow. Are you in
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  Speaker 2: that camp?
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  Speaker 3: Yes, very much so. I mean the Reserve Bank made
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  Speaker 3: a bit of a pretty strong rod for their own
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  Speaker 3: back back in November and said, look, it would be
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  Speaker 3: a pretty difficult move for them to not move by
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  Speaker 3: fifty when they look at the monetary policy settings. And
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  Speaker 3: I think part of that was because they had a
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  Speaker 3: big three month break before between November and this review
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  Speaker 3: in February. They wanted to give a pretty strong level
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  Speaker 3: of guidance to the market over where they're thinking was
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  Speaker 3: where they thought the direction of travel has gone. All
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  Speaker 3: of the data that we've had since then has broadly
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  Speaker 3: been in the same sort of area. You know, you've
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  Speaker 3: seen economic activity that declined, some big revisions in those numbers,
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  Speaker 3: but the likes of the unemployment rate, the likes of
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  Speaker 3: inflation all broadly coming in at the right level. So
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  Speaker 3: not enough of a shift from expectations for the Reserve
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  Speaker 3: Bank to shift from their pretty strong guidance. They don't
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  Speaker 3: normally give it quite so strong, and so I think
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  Speaker 3: they'll stick to their word at this point.
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  Speaker 2: And then the interesting part, of course, will be what
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  Speaker 2: happens after that three and a half percent was where
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  Speaker 2: they predicted they might get to by year's end. Percent
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  Speaker 2: around three percent is neutral. Do you think that that
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  Speaker 2: track will change?
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  Speaker 3: Well, I think that's the thing that we're sort of
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  Speaker 3: a bit unsure about at the moment. Even financial markets
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  Speaker 3: have started to show a bit of a shift so
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  Speaker 3: far in twenty twenty five. You know, still pricing in
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  Speaker 3: an expectation that the sort of bottom would be around
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  Speaker 3: that three percent mark. But interestingly there's a bit more
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  Speaker 3: market pricing now picking a slight increase in the official
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  Speaker 3: cash rate come early twenty twenty six. And that does
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  Speaker 3: make us wonder, if you know, some of those worries
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  Speaker 3: about the likes of global inflationary pressures the lower exchange rate.
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  Speaker 3: There's a risk I think if the Reserve Bank continues
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  Speaker 3: with this expectation of more and more cuts, that they
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  Speaker 3: might well overdo it again. They might cut too much
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  Speaker 3: and then have to raise things up in twenty twenty six.
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  Speaker 3: So I think that a smarter move would be for
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  Speaker 3: the Reserve Bank to go back to their sort of
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  Speaker 3: watch and worry and wait settings where they say that
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  Speaker 3: sort of course of least regrets from here is being
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  Speaker 3: a bit more data dependent and saying, look, we might
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  Speaker 3: well move a bit slower than we said before. We
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  Speaker 3: might not cut as much. And I think that overall,
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  Speaker 3: the tone I think as most appropriate as saying that
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  Speaker 3: there might not be as many further cuts on the table.
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  Speaker 2: Which means we got really hurt when they went too
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  Speaker 2: far one way and we won't get the benefit of
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  Speaker 2: them going too far the other way.
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  Speaker 3: Well, the question here really is we do interest rates
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  Speaker 3: sort of settle now what is normal? Because I think
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  Speaker 3: anyone thinking that interest rates are you know, getting a
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  Speaker 3: mortgage of two percenters is sort of you know, lost
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  Speaker 3: their vision a little bit here. I mean that was
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  Speaker 3: abnormal interest rates for abnormal times. You know, if you
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  Speaker 3: saw interest rates sort of around that sort of low
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  Speaker 3: five high four percent mark. That's probably where I think
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  Speaker 3: a lot of people if you look back over interest
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  Speaker 3: rates over time, that'd be pretty happy with those sort
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  Speaker 3: of numbers. But of course we've got much higher house
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  Speaker 3: prices than before and similar so I do think we're
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  Speaker 3: trying to figure out where the new goldilock zone is.
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  Speaker 3: But I think as well for the Reserve Bank, I
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  Speaker 3: think surely it would be a bit more appropriate now
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  Speaker 3: to go. Look, we've done a lot of the heavy
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  Speaker 3: cutting that they needed to. Now it's about fine churning
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  Speaker 3: the process a bit. So let's not be hasty and
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  Speaker 3: going cap cap cut. Let's have a little bit more
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  Speaker 3: of a nuanced approach sort of vectoring and all the
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  Speaker 3: data that's coming through, because there's still a lot of
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  Speaker 3: moving parts. There's tariff says, exchange rates, there's growth around
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  Speaker 3: the world. All of that will make a difference.
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  Speaker 2: All right, Brad, thank you very much for that. That's
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  Speaker 2: Brad Olsen, Informetrics, principal economist.
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