Latest / Best of Business / Michael Reddell: former Reserve Bank economist on the Reserve Bank cutting the cash rate by 25 basis points

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Michael Reddell: former Reserve Bank economist on the Reserve Bank cutting the cash rate by 25 basis points · 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: Good afternoon, So we've got the start of good news
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  Speaker 2: for the economy. The Reserve Bank has cut the official
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  Speaker 2: cash rate by twenty five basis points and there's likely
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  Speaker 2: to be at least another cut coming this year. Kiwibank
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  Speaker 2: ASB and A and Z immediately announced that they were
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  Speaker 2: cutting their mortgage rates and response and the Finance Minister
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  Speaker 2: was celebrating as well.
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  Speaker 3: After four years, we're the only way for interest rates
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  Speaker 3: to go was app The Reserve Bank is now forecasting
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  Speaker 3: an era of interest rate reductions.
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  Speaker 2: Former Reserve Bank economist Michael Riddella's with me now, have Michael,
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  Speaker 2: were you surprised to see them actually do the right
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  Speaker 2: thing and cut.
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  Speaker 4: You couldn't quite tell what an institution that flipflops as
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  Speaker 4: much as they have, But no, I thought they would
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  Speaker 4: find me today. When you're in a hole, you stop digging,
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  Speaker 4: and even they learn that lesson right and.
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  Speaker 2: What is the motivator for them? Basically because we're in
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  Speaker 2: a third recession.
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  Speaker 4: Yeah, I mean I don't quite use those words, but
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  Speaker 4: economies but are proven weaker than they expected to get
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  Speaker 4: back to their Maide monetary policy statement, they were expecting
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  Speaker 4: to see the economy starting to pick up. If anything,
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  Speaker 4: it's getting worse. And they highlight a bunch of high
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  Speaker 4: frequency indicators, business surveys, and those sorts of things that
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  Speaker 4: are looking really quite bleak at the moment.
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  Speaker 2: Yeah, interesting press conference today. Adrian Or wouldn't admit that
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  Speaker 2: he'd made any mistakes. Of course he wouldn't.
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  Speaker 4: Has he done that, definitely has. I mean, it's a
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  Speaker 4: really bad look for the bank to have gone out
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  Speaker 4: pretty strongly in May on the idea that rates would
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  Speaker 4: have to stay out for at least a year. They
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  Speaker 4: might even have to rise somewhat from there to where
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  Speaker 4: we are today. And it's not as if some big
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  Speaker 4: event has happened externally. It's just that they badly misread
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  Speaker 4: of what's going on in the economy. And that's pretty
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  Speaker 4: inexcusable because they were raising ranks up to the middle
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  Speaker 4: of last year. Monitary policy works with a lag. It
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  Speaker 4: takes a year or so. When you get in respects
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  Speaker 4: to a high level. A year or so later, you
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  Speaker 4: expect to see things looking pretty sick, and pretty sick
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  Speaker 4: they are The good news is that means inflash is
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  Speaker 4: really coming down, and I've been now much more confident
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  Speaker 4: that we're going to get back to the middle of
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  Speaker 4: the target range, but at quite a price.
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  Speaker 2: Michael, Can you explain how they misread things so badly
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  Speaker 2: that they've gone from a possible hike in May to
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  Speaker 2: a cut in August.
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  Speaker 4: It's hard to do so without being a flyerunder all
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  Speaker 4: of their deliberations, but I think they were sort of
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  Speaker 4: freaked for a bit about by some of the things
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  Speaker 4: I'm so called non tradables inflation, so particularly rates and
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  Speaker 4: insurance costs, and neither of those things are things that
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  Speaker 4: muchary polity can do much about. And somehow they just
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  Speaker 4: got rattled and they didn't believe the narrative, they didn't
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  Speaker 4: believe in their models, and a few bits of data
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  Speaker 4: three months ago just mis led them. And it's a
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  Speaker 4: week leadership on the part of the governor and the
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  Speaker 4: chief economist not to have said, look, guys, let's just
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  Speaker 4: hold the course and see what we get to.
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  Speaker 2: So what are you picking? Another cut by year's end
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  Speaker 2: and four and a half percent, oh cr by mid
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  Speaker 2: next year.
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  Speaker 4: I actually think they'll lend of having to go further
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  Speaker 4: than that. If you look at the numbers in their
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  Speaker 4: martial policy statement, they expect to see growth rebounding quite
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  Speaker 4: strongly by early next year, and it's just not clear
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  Speaker 4: how that's going to happen. Fiscal policy is going to
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  Speaker 4: be quite contractionary. The government's cutting spending over the next
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  Speaker 4: couple of years. Interst rates on their own telling are
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  Speaker 4: still above what we call neutral, So I wouldn't be
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  Speaker 4: surprised if for the middle of next year we aren't
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  Speaker 4: down to three or even two point five percent, well
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  Speaker 4: consistent with what's happened in previous using cycles over twenty
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  Speaker 4: thirty years.
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  Speaker 2: Yeah, that's a massive change, isn't it. Michael. Thank you
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  Speaker 2: very much for the expertise. Michael Radelle, former Reserve Bank economist.
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