Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on the market reactions to the OCR being left in place

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Jenee Tibshraeny: NZ Herald Wellington business editor on the market reactions to the OCR being left in place · 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: Of course, the new Reserve Bank governor's first announcement on
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  Speaker 2: the OCR is being described as dubvish New Zealand Herald
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  Speaker 2: Wellington Business editor your native train. He's been looking at
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  Speaker 2: this and is with us now, Hi, Jena.
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  Speaker 3: Hi, Heather.
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  Speaker 2: So she seems strangely quite unfazed by the inflation. What
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  Speaker 2: do you make of that?
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  Speaker 1: Yeah, that's right.
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  Speaker 3: The market was expecting the Reserve Bank to be a
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  Speaker 3: little bit more worried than it was about inflationary pressures
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  Speaker 3: coming through. But what the bank did instead was to
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  Speaker 3: say that it would keep the OCI at an sort
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  Speaker 3: of accommodative level for some time, provided the economy evolved
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  Speaker 3: as it expected. So look what that means for you
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  Speaker 3: and me is that it would seem that mortgage and
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  Speaker 3: term deposit rates are unlikely to keep rising in the
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  Speaker 3: near term. Listeners will recall that in December and in
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  Speaker 3: January those interest rates started going up mortgage in term
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  Speaker 3: deposit rates, but based on current market pricing, and you
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  Speaker 3: know how the market has interpreted what the Reserve Bank
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  Speaker 3: has said, it seems like those rates aren't going up
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  Speaker 3: anymore for now, at least.
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  Speaker 2: Somebody has suggested to me that it's a ruse that
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  Speaker 2: actually they are worried about inflation, are more worried about
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  Speaker 2: inflation that they than saying. But they can't say that
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  Speaker 2: out loud because that would be then admitting that November's
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  Speaker 2: dropping of the ocr was a mistake.
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  Speaker 3: Oh look, I mean, people always sort of you know,
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  Speaker 3: it's easy to tie yourself in a not over this stuff,
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  Speaker 3: and central bank speak is kind of a language of
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  Speaker 3: its own, and markets do read a lot into the
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  Speaker 3: wording of what people like the governors say. I think
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  Speaker 3: the challenge here that the Reserve Bank has faced was
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  Speaker 3: that the market reacted differently to what it expected to
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  Speaker 3: its November statement. So we talked about this on the
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  Speaker 3: show in the past. Basically, they didn't expect Christian hawks
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  Speaker 3: Be to close the door to further interest rate cuts
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  Speaker 3: as much as he did. This caused the market to
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  Speaker 3: go a bit nuts, quite frankly, start pricing in you
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  Speaker 3: know o CR hikes throughout this year. You know, that's
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  Speaker 3: saw banks push up their their mortgage and their term
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  Speaker 3: deposit rates, those those fixed rates, those rates rose by
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  Speaker 3: more than what the Reserve Bank expected. You know, that
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  Speaker 3: did according to the Reserve Bank, they think that did
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  Speaker 3: actually stymy economic growth a wee bit. You know, those
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  Speaker 3: rates going up didn't give you know, didn't give us
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  Speaker 3: much time with rates at quite low levels, you know,
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  Speaker 3: to just feel a bit better about our mortgages and
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  Speaker 3: you know, get things going a bit. So I think
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  Speaker 3: because of this turbulent time, it made sense for the
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  Speaker 3: Reserve Bank to just say, look, we're just going to
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  Speaker 3: keep the o CR where it is for some time,
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  Speaker 3: give the economy sometime to just you know, recover, for
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  Speaker 3: things to settle down, and then take it from there.
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  Speaker 3: I must say, I must say, actually, the market reaction
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  Speaker 3: wasn't that big, So swap brks as wholesale interest rates
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  Speaker 3: did come down a bit. That that shows the dubbishness,
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  Speaker 3: But the reaction wasn't massive, Like, the market wasn't terribly
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  Speaker 3: surprised by what the reservvent did.
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  Speaker 2: Did it look to you like she is a little
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  Speaker 2: bit worried about what's going on with the house prices
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  Speaker 2: and the effect that that's having on people spending because
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  Speaker 2: they don't have that wealth effect.
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  Speaker 3: Yeah, she did raise a really interesting point that in
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  Speaker 3: New Zealand in the past, when interest rates have gone down,
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  Speaker 3: house prices have gone up. And when house prices go up,
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  Speaker 3: we all feel richer people who own houses do. Renters
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  Speaker 3: get agitated, of course, but homeowners feel better, and you
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  Speaker 3: know that the mortgage servicing costs are down and they
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  Speaker 3: spend more. But what's happened now is that those house
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  Speaker 3: prices have not really gone up, so that wealth effect
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  Speaker 3: that traditionally has stimulated the economy is not happening. So
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  Speaker 3: what Anna Breema said was that in this recovery we
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  Speaker 3: are relying more on the labor market strengthening to and
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  Speaker 3: that strength supporting the economy rather than the wealth effect.
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  Speaker 3: So the chiefs Poor Conway said that actually that different
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  Speaker 3: dynamic that they did see that as a risk, you know,
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  Speaker 3: not because they particularly want house prices to go up,
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  Speaker 3: but just because the way things are rolling out is
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  Speaker 3: a bit different to the way they've rolled out in
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  Speaker 3: the past.
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  Speaker 2: Jennay, thanks very much, appreciate your time. Jenative Trainey, The
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  Speaker 2: Herald's Wellington Business editor. Twenty Away from seven.
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