Latest / Early Edition with Ryan Bridge / Nick Tuffley: ASB Chief Economist on the Reserve Bank cutting the OCR by 25 basis points

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Nick Tuffley: ASB Chief Economist on the Reserve Bank cutting the OCR by 25 basis points · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: We've got another OCI cut down twenty five points to
• 0:02
  Speaker 1: three point twenty five. Uncertainty again reigns supreme. They reckon
• 0:06
  Speaker 1: we'll get another cut at their next meeting, but there's
• 0:08
  Speaker 1: a bunch of caveats to that. Inflation will hit two
• 0:11
  Speaker 1: point seven percent nearly out of range, then come down
• 0:13
  Speaker 1: to two percent next year. Nick Tuffley, chief Economist, today
• 0:16
  Speaker 1: is to be back with me this morning, Nick, Good
• 0:17
  Speaker 1: morning morning. Does the fact that they had to vote
• 0:21
  Speaker 1: on this one make it more or less hopeful that
• 0:24
  Speaker 1: they will do a cut next time?
• 0:27
  Speaker 2: Look, it is really a reflection of just how much
• 0:30
  Speaker 2: uncertainty there is out there, and the member of the
• 0:34
  Speaker 2: committee that voted to keep things on hold just really
• 0:37
  Speaker 2: wanted more time to see how some of the the
• 0:39
  Speaker 2: inflation risks pan out. And of course the big one
• 0:42
  Speaker 2: is what Donald Trump is doing with the tariffs and
• 0:45
  Speaker 2: just how that will impact inflation in New Zealand. I
• 0:48
  Speaker 2: think we still get another cut next month. We still
• 0:51
  Speaker 2: think we'll get two more in fact, but there's still
• 0:54
  Speaker 2: that uncertainty about just how far the Reserve Bank will go,
• 0:57
  Speaker 2: and also when it's almost possible pause at some point.
• 1:02
  Speaker 1: The Trump uncertainty, think the only certain thing about him
• 1:06
  Speaker 1: is that he is uncertain. Does that not take some
• 1:08
  Speaker 1: of the unpredictability of it out of the equation?
• 1:12
  Speaker 2: Well, the challenges is that when you have an uncertain environment,
• 1:16
  Speaker 2: you get people who don't make decisions, and that also
• 1:19
  Speaker 2: flows through and potentially weakens the economy. For the Reserve Bank,
• 1:23
  Speaker 2: where they seem to have been debating global growth will slow.
• 1:26
  Speaker 2: What will that do to inflation? Is it going to
• 1:28
  Speaker 2: be a bit like a supply shop or a cost
• 1:31
  Speaker 2: shop where it just gets more expensive to make stuff
• 1:33
  Speaker 2: around the world, or is the dominating fact going to
• 1:36
  Speaker 2: be people stop buying things, you get weaker demand, you
• 1:41
  Speaker 2: get slow exports from New Zealand, and less inflation pressure.
• 1:44
  Speaker 2: So they've assumed that's what's going to happen. But they
• 1:47
  Speaker 2: are in two minds and that's where the internal debate
• 1:51
  Speaker 2: seem to have been for this meeting.
• 1:53
  Speaker 1: And then you look at consumer confidence bouncing back in
• 1:56
  Speaker 1: the US, you look at some of that Chinese industrial
• 1:59
  Speaker 1: profit number, you look at a whole bunch of stuff.
• 2:01
  Speaker 1: I mean, it's not it's not actually doom and gloom,
• 2:04
  Speaker 1: is it.
• 2:06
  Speaker 2: Look it's not overall? I think with the brink being
• 2:11
  Speaker 2: sort of pulled back from particularly around China and the US.
• 2:14
  Speaker 2: You are getting some of the lurching from a sort
• 2:17
  Speaker 2: of almost a freeze on some trade and manufacturing to
• 2:20
  Speaker 2: its starting to turn around. But look, even that is
• 2:23
  Speaker 2: doing some damage in the short term. And the reality
• 2:26
  Speaker 2: is is that when you look at the US consumers,
• 2:29
  Speaker 2: there will have slightly less money to go around. In China,
• 2:32
  Speaker 2: there's going to be slightly less manufacturing activity. There will
• 2:35
  Speaker 2: be ripple effects coming through. But no, not the end
• 2:38
  Speaker 2: of the world, but it is in our view, likely
• 2:40
  Speaker 2: to dampen inflation when you're looking a year or two out.
• 2:43
  Speaker 1: They spoke about, you know, the three percent neutral rate,
• 2:46
  Speaker 1: and there was people asking at the press conference, you know,
• 2:49
  Speaker 1: do you go lower so that you start revving things up,
• 2:53
  Speaker 1: and they said, basically, we don't like that word anymore.
• 2:55
  Speaker 1: It's a little bit obsolete because we're so close to neutral.
• 2:57
  Speaker 1: We're going to start using this quote feel our way.
• 3:00
  Speaker 1: What's that about?
• 3:02
  Speaker 2: Well, I think that's reality is like neutral some concept
• 3:05
  Speaker 2: where you can never really see it, and they see
• 3:07
  Speaker 2: it somewhere between two and a half and three and
• 3:09
  Speaker 2: a half. So they're kind of in that territory at
• 3:11
  Speaker 2: the moment. It's kind of like trying to engineer a
• 3:13
  Speaker 2: landing in the fog. You kind of have to sort
• 3:15
  Speaker 2: of almost sort of wait until you feel a bit
• 3:17
  Speaker 2: of rumbling from the ground coming through. Where we are
• 3:21
  Speaker 2: at the moment, you can see there's a bit of
• 3:23
  Speaker 2: a lag in the impact of interest rates coming through.
• 3:26
  Speaker 2: That's that's pretty clear, and that's always there. But it
• 3:29
  Speaker 2: does look like with the economy just taking a little
• 3:32
  Speaker 2: bit of time, but that's a domestic spending to get
• 3:34
  Speaker 2: going that we still need interest rates to go with.
• 3:37
  Speaker 1: Them go yet, yeah, but not too low because they
• 3:40
  Speaker 1: don't want to overcook things the other way, right, And
• 3:42
  Speaker 1: there's a time leg as you say.
• 3:44
  Speaker 2: Yep, there's always the art and you're doing it where
• 3:48
  Speaker 2: it takes two years for what you do to have
• 3:50
  Speaker 2: its full effect as well, so it's not easy.
• 3:52
  Speaker 1: Appreciate your time, Nick Nick Tuughly asp Chief Economists. For
• 3:56
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• 3:59
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• 4:02
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