Latest / Early Edition with Ryan Bridge / Kelly Eckhold: Westpac Chief Economist on the expectation the Reserve Bank will hike the Official Cash Rate

Transcript

Kelly Eckhold: Westpac Chief Economist on the expectation the Reserve Bank will hike the Official Cash Rate · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: OCR day today. Odds on we'll get a 25 basis
• 0:03
  Speaker 1: point increase. That'll take us to 3%. We've got renewed
• 0:05
  Speaker 1: inflation pressures. We've got a weaker Kiwi dollar. Some are
• 0:08
  Speaker 1: expecting another hike in December and some even further another
• 0:11
  Speaker 1: hike in February. Kelly Echold, Westpac chief economist with us
• 0:14
  Speaker 1: this morning. Kelly, good morning.
• 0:15
  Speaker 2: Good morning.
• 0:17
  Speaker 1: Have you seen the comments from Shamabel Yacob? I mean,
• 0:20
  Speaker 1: he's one of a couple now who was saying, actually,
• 0:22
  Speaker 1: we should be holding not hiking. You look at labour costs,
• 0:26
  Speaker 1: you look at What the Reserve Bank has said was
• 0:28
  Speaker 1: going to happen, not happening. What do you reckon?
• 0:30
  Speaker 2: I don't really agree with his core argument because I
• 0:34
  Speaker 2: think Chamomile and I probably have very different ideas about
• 0:37
  Speaker 2: where interest rates are going in a year or so.
• 0:40
  Speaker 2: But I would agree that today there's a very good
• 0:42
  Speaker 2: argument for the Reserve Bank to not lift the OCR
• 0:46
  Speaker 2: because all that's really changed in the last six weeks
• 0:48
  Speaker 2: is that the oil price has gone up $ 20- odd a
• 0:50
  Speaker 2: barrel and the exchange rate's gone down a bit. Both
• 0:53
  Speaker 2: of these things are quite variable. Both of these things
• 0:56
  Speaker 2: basically just move the very short-term inflation outlook and it
• 1:00
  Speaker 2: should be the medium-term inflation outlook that the Reserve Bank
• 1:03
  Speaker 2: should be focused on.
• 1:05
  Speaker 1: That's what they said at the very outset, right? The
• 1:07
  Speaker 1: second round is what we're watching for.
• 1:10
  Speaker 2: That's right. And so far, we haven't really seen a
• 1:13
  Speaker 2: lot of evidence that there's any second round impacts going on.
• 1:16
  Speaker 2: And actually, that seems to be the message around most
• 1:18
  Speaker 2: countries around the world as well. But it is fair
• 1:21
  Speaker 2: to say, though, that with headline inflation heading over 4%
• 1:24
  Speaker 2: and core inflation around 3%, There's certainly going to be
• 1:28
  Speaker 2: a bit of work to do for the Reserve Bank
• 1:30
  Speaker 2: over the course of the next year. But I think
• 1:33
  Speaker 2: we need to be sure that the economy is going
• 1:36
  Speaker 2: to be sustainably recovering. And also, we have to keep
• 1:39
  Speaker 2: an eye on where those long-term interest rates are going
• 1:41
  Speaker 2: as well. They've risen quite a bit in the last
• 1:43
  Speaker 2: six weeks or so.
• 1:44
  Speaker 1: So you reckon it's more of a lineball call today,
• 1:47
  Speaker 1: do you? I mean, the markets are saying 85% chance
• 1:49
  Speaker 1: they will hike. How would you describe it?
• 1:52
  Speaker 2: Oh, I think it's probably closer to a 50% chance,
• 1:54
  Speaker 2: to be honest with you. I mean, I think in
• 1:56
  Speaker 2: the end, the Reserve Bank will toe the market slide here.
• 2:00
  Speaker 2: They'll see it as probably too disruptive to disappoint markets,
• 2:05
  Speaker 2: especially given it's a week or so before the election. But,
• 2:08
  Speaker 2: you know, just because that's what they're going to do
• 2:11
  Speaker 2: doesn't necessarily make it the best idea.
• 2:13
  Speaker 1: David Seymour mentioned in his press conference yesterday that the
• 2:16
  Speaker 1: dollar's weaker because the election's coming and there's a chance
• 2:19
  Speaker 1: the government will change. Is there any truth in that?
• 2:22
  Speaker 2: Oh, I think it's a pretty marginal impact. I mean,
• 2:25
  Speaker 2: the New Zealand dollar has depreciated largely in line with
• 2:29
  Speaker 2: a lot of foreign currencies have done. One of my
• 2:31
  Speaker 2: colleagues did some analysis of how the New Zealand dollar
• 2:34
  Speaker 2: behaves around elections and didn't find a very strong, consistent effect.
• 2:39
  Speaker 2: So I don't really think it's the biggest factor.
• 2:41
  Speaker 1: Good stuff. Kelly Eccle, Westpac. For more from Early Edition
• 2:45
  Speaker 1: with Ryan Bridge, listen live to Newstalk ZB from 5am
• 2:49
  Speaker 1: weekdays or follow the podcast on iHeartRadio.