Latest / Best of Business / Kelly Eckhold: Westpac Chief Economist weighs in on latest OCR cut

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Kelly Eckhold: Westpac Chief Economist weighs in on latest OCR cut · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks'd be follow
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  Speaker 2: The Reserve Bank has cut the official cash rate by
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  Speaker 2: twenty five bases points to three point twenty five percent.
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  Speaker 2: Inflation still worries them. They're tapping it to rise further
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  Speaker 2: before the end of this year. But the economy is
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  Speaker 2: clearly stuffed and will be for a while. Cali Echoled
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  Speaker 2: is Westpax chief economist.
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  Speaker 3: Hi Keli Hi, how are you?
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  Speaker 2: I'm well, thank you. Why did they cut off their
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  Speaker 2: expecting inflation to still go up?
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  Speaker 3: Well, I think they're anticipating that inflation is going to
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  Speaker 3: come back again after we get past this near term
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  Speaker 3: bump towards the end of the year. They think that
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  Speaker 3: the unemployment rates still above nayru, so that's going to
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  Speaker 3: be putting some downward pressure on wage growth. They think
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  Speaker 3: we've got a little bit of excess capacity in the
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  Speaker 3: economy that should bring inflation to heal over time.
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  Speaker 2: Should they have looked through it, then they have.
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  Speaker 3: Looked through it, at least to some extent. They're certainly
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  Speaker 3: not talking about putting interest rates up, but what it
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  Speaker 3: is telling you though, is that they're not so sure
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  Speaker 3: about how much further they need to put interest rates down,
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  Speaker 3: so that they're just slowing the pace of easing a bit.
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  Speaker 2: Do you think they've done the right thing, given how
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  Speaker 2: stuff the economy isn't given the fact that they are
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  Speaker 2: still a handbrake on the economy, should they have gone
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  Speaker 2: for fifty.
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  Speaker 3: I don't think so. I mean, firstly, we have to
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  Speaker 3: remember that their mandate has been squarely just put on
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  Speaker 3: the inflation outlook, and the inflation outlook is looking a
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  Speaker 3: little bit uncomfortable, particularly for the balance of this year.
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  Speaker 3: You're basically looking at seeing headline inflation closer to three
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  Speaker 3: percent and two percent. I'm not so sure that the
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  Speaker 3: Reserve Bank is really a handbreak on the economy right now. Either.
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  Speaker 3: Interest rates are fulling a long way, and you can
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  Speaker 3: see some evidence of that occurring through many indicators that
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  Speaker 3: are out there. We're not certainly booming by any stretch
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  Speaker 3: of the imagination, so it does take a while.
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  Speaker 2: Where do you think neutral then?
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  Speaker 3: Oh, I've been arguing that it's probably close to three
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  Speaker 3: point seventy five percent, and we've just sort of like
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  Speaker 3: dipped through that level now in the last couple of meetings.
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  Speaker 2: Okay, hey, what do you make of the fact that
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  Speaker 2: they weren't unanimous?
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  Speaker 3: Well, clearly there is some dissension in the ranks. I
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  Speaker 3: had expected that we would see signs of increased debate
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  Speaker 3: in terms of how the outlook would go, but I
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  Speaker 3: didn't think they'd be very much debate about needing to
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  Speaker 3: cut rates. Now, the fact that somebody's prepared to put
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  Speaker 3: their hand up and say, actually, I just think we
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  Speaker 3: should wait here tells you that, you know, there was
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  Speaker 3: a bit of more of a wineball call than we
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  Speaker 3: were all expecting.
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  Speaker 2: Now, tell me, how would you describe the economy right,
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  Speaker 2: because they've cut their growth forecast even from the last
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  Speaker 2: time when they met in February. What do you would
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  Speaker 2: you would you say the economy is stuffed or what
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  Speaker 2: would you say?
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  Speaker 3: Oh? No, I would say the economy is slowly recovering.
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  Speaker 3: The Reserve banks revised growth forecasts are more negative in
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  Speaker 3: our own. That's one of the res is why they're
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  Speaker 3: still projecting a need for one more cut and possibly
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  Speaker 3: another one over the course of the rest of this year.
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  Speaker 3: It remains to be seen, though, whether the economy is
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  Speaker 3: raally going to be as weak as that I think
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  Speaker 3: they're really kind of pricing in the possibility that business
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  Speaker 3: might just take a bit of a step back with
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  Speaker 3: the global situation looking a bit more uncertain.
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  Speaker 2: I'm liking your optimism, Kelly. Thank you for that, Kelly,
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  Speaker 2: You're cold. Chief Economist WHISPAC.
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