Latest / Best of Business / Brad Olsen: Infometrics Principal Economist on the increase in banks dropping their interest rates

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Brad Olsen: Infometrics Principal Economist on the increase in banks dropping their interest rates · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalks'd be follow this
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  Speaker 1: due for Celsen.
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  Speaker 2: Past six now several New Zealand banks have been dropping
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  Speaker 2: interest rates again today, mainly the eighteen month and the
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  Speaker 2: two year rates. So ki We Bank and be in
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  Speaker 2: z also are now both calling for a cut to
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  Speaker 2: the ocr next week Brad olsenism for Patrick's principal economists
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  Speaker 2: and with us now Brad.
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  Speaker 3: Good evening, are they dreaming? Oh?
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  Speaker 4: I think they have a pretty convincing argument for why
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  Speaker 4: it should happen. The question now was what was the
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  Speaker 4: reserve banking in May or July and how do they
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  Speaker 4: take all of it? So, I mean the economic numbers
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  Speaker 4: haven't changed as markedly as I think. You know, this
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  Speaker 4: big shift would be because it would be effectively the
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  Speaker 4: Reserve Bank moving forward their expectations and moving on the
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  Speaker 4: official cash rate a year earlier than they were originally thinking.
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  Speaker 3: So there will be a pretty heroic shift.
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  Speaker 4: But maybe it could happen because we know the economy
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  Speaker 4: is going through a lot of ups and downs at
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  Speaker 4: the moment. You can see that the stock markets, we're expecting,
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  Speaker 4: unemployment rate data out tomorrow to show some darker things
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  Speaker 4: as well.
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  Speaker 3: So all of that together you can start.
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  Speaker 4: To build an argument for the Reserve Bank moving maybe
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  Speaker 4: sooner other mater I still feel like it's probably more
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  Speaker 4: in that November sort of area where the Reserve Bank
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  Speaker 4: might land, but I think there is an increasing argument
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  Speaker 4: for why it might be time to move. To be
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  Speaker 4: fair headed, that argument's probably been growing for a while,
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  Speaker 4: but we're still not sure where the Reserve Bank will
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  Speaker 4: actually land on any of this.
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  Speaker 2: Yeah, I mean the argument that keiw We Bank make
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  Speaker 2: is that interest rates take about eighteen months to filter
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  Speaker 2: through anyway, So even if they start cutting now, we're
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  Speaker 2: really eighteen months away from feeling the relief fully. So
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  Speaker 2: isn't that a fair argument?
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  Speaker 4: It is a fair argument, But the Reserve Bank also
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  Speaker 4: knows that like that won't be newsed to them. So again,
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  Speaker 4: if they were thinking it was, you know, towards the
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  Speaker 4: second half of next year on their official forecast that
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  Speaker 4: they were going to move back when they last put
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  Speaker 4: out those forecasts, and they knew at that point that
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  Speaker 4: it was still going to take eighteen months, and they
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  Speaker 4: still thought that was the right move. So, like I said,
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  Speaker 4: what has changed markedly since then. I look at the numbers,
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  Speaker 4: and yet they've gotten sort of better on inflation, worse
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  Speaker 4: on other parts of the economy, but broadly in line
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  Speaker 4: what the bank was thinking anyway. So that's what I'm
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  Speaker 4: trying to figure out, is if the bank still thought
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  Speaker 4: that back in May, how has.
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  Speaker 3: Their shifting, How has their view shifted that much?
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  Speaker 4: Again, though, I think we'd actually probably see a slightly
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  Speaker 4: sharper amount of that monetary policy change pass through quicker.
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  Speaker 3: We know, for example, that about twenty percent of new.
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  Speaker 4: Loans over the last couple of months have been people
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  Speaker 4: fixing for only six month periods, sort of betting on
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  Speaker 4: a cut sooner.
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  Speaker 3: Other than later.
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  Speaker 4: So you might see a slightly quicker pass through the normal,
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  Speaker 4: But look, it will take a while to come through.
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  Speaker 3: The economy is obviously in a difficult place.
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  Speaker 4: But I think there is a real question amongst economists
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  Speaker 4: at the moment over how quickly the Reserve Bank does it,
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  Speaker 4: and probably more importantly, how quickly the Reserve Bank should
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  Speaker 4: do it, And they are still quite a way apart
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  Speaker 4: at the moment.
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  Speaker 2: What do you make of the market turmoil in the
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  Speaker 2: last few days around the world.
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  Speaker 4: Well, I think to be honest, probably a lot of
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  Speaker 4: sort of overreaction, everyone losing their minds in the market
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  Speaker 4: and then maybe coming back a bit to their senses.
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  Speaker 3: I mean, you look at the likes of the Japanese market.
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  Speaker 4: Yesterday dropped the largest it's ever dropped, worse than the
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  Speaker 4: eighty seven stop crash.
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  Speaker 3: Yet today it's up another sort of ten percent, you know, so.
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  Speaker 4: It's pulled back a lot of those losses. So I
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  Speaker 4: think probably what's happened. You've got three broad threat things.
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  Speaker 4: The Japanese have raised interest rates, that's pretty unusual. The
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  Speaker 4: US economy is looking a little bit worse for wear,
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  Speaker 4: and that sort of ringing those recession alarm bells. But
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  Speaker 4: I think there's also a part where the market's the
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  Speaker 4: last couple of months, particular on tech.
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  Speaker 3: Particular on AI, got way over zealous.
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  Speaker 4: You know, everyone was thinking that these things were just
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  Speaker 4: going to make them, you know, quadtrillions more than they
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  Speaker 4: could ever imagine. Now I think we've come crashing back
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  Speaker 4: to earth. We're probably a bit more realistic about things,
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  Speaker 4: and the outlook just in the general economy and in
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  Speaker 4: tech is not as upbeat, so a bit more realism.
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  Speaker 4: It's going to sort of be a bit ugly. There's
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  Speaker 4: a lot of red ink and I think, you know,
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  Speaker 4: people probably don't want to check their key. We save
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  Speaker 4: as tonight for the next couple of days. But actually
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  Speaker 4: I think sort of keep calm and carry on is
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  Speaker 4: maybe not the worst idea in the world at the moment.
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  Speaker 2: Very good advice, Hey, Brad, Thank you as always appreciated.
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  Speaker 2: Brad awsoon informetrics principle economists. Brad is the expert and
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  Speaker 2: I'm not. But I'm going to say October when he
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  Speaker 2: says November for the first cut. So we'll just put
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  Speaker 2: that out there because if I beat Brad on this,
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  Speaker 2: it's going to be bragging right for the rest of
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  Speaker 2: my life. Let's be honest.
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