Latest / Best of Business / Anna Breman: Reserve Bank Governor on why the Reserve Bank kept the OCR on hold at 2.75 percent

Transcript

Anna Breman: Reserve Bank Governor on why the Reserve Bank kept the OCR on hold at 2.75 percent · Best of Business

• 0:09
  Speaker 1: You're listening to a podcast from Newstalk ZB.
• 0:12
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• 0:16
  Speaker 1: In quite a big surprise, the Reserve Bank has kept
• 0:19
  Speaker 1: the official cash rate at 2.75% today.
• 0:22
  Speaker 2: It was widely expected to be hiked.
• 0:25
  Speaker 1: ASB had it at 95% locked in on hiking. But
• 0:28
  Speaker 1: in a split vote of four to three, the Reserve
• 0:31
  Speaker 1: Bank Monetary Policy Committee opted to keep it held. Governor
• 0:34
  Speaker 1: Anna Bremen is with us now. Hi, Anna.
• 0:37
  Speaker 3: Hi. Hi, Heather.
• 0:38
  Speaker 2: Why did you halt?
• 0:40
  Speaker 3: Because what we've seen is that inflation in the latest
• 0:45
  Speaker 3: data was actually a little bit weaker than we expected.
• 0:49
  Speaker 3: And that shows that inflation expectations are still well anchored.
• 0:53
  Speaker 3: We see that it's tough for firms to pass on
• 0:56
  Speaker 3: cost increases onto households. Wage growth is still really subdued.
• 1:02
  Speaker 3: We're seeing weak demand from the households. Household consumption is
• 1:06
  Speaker 3: growing relatively slowly, and that's pushing down on the inflation
• 1:11
  Speaker 3: over the medium term. So we are focused on bringing
• 1:15
  Speaker 3: inflation back to target, but we also know that we
• 1:20
  Speaker 3: are already down to OCR increases, and so we could
• 1:25
  Speaker 3: pause and assess the situation at this meeting.
• 1:27
  Speaker 2: Is there a risk that inflation gets away on you?
• 1:31
  Speaker 3: We don't think so, because we've actually seen the opposite.
• 1:34
  Speaker 3: We've actually seen lower effects from the higher fuel prices
• 1:37
  Speaker 3: onto other prices. So we can't really stop the fuel
• 1:41
  Speaker 3: prices from making inflation go higher, but we can stop
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  Speaker 3: the indirect and what we call second round effects. And
• 1:48
  Speaker 3: that's exactly what we've seen. We've seen that the indirect effects,
• 1:51
  Speaker 3: so how fuel prices affect other kinds of prices like
• 1:54
  Speaker 3: transport and food prices and things like that, those effects
• 1:58
  Speaker 3: have actually been a bit weaker than we thought. And
• 2:00
  Speaker 3: we don't see what we call the second round effects yet,
• 2:02
  Speaker 3: which is, you know, the effects on wages and inflation
• 2:05
  Speaker 3: expectations and these kinds of things. So currently we're seeing
• 2:10
  Speaker 3: that the conditions to bring inflation back are favorable and
• 2:14
  Speaker 3: we will keep on focusing on making that happen.
• 2:17
  Speaker 2: What is the thing that you are most worried about
• 2:19
  Speaker 2: happening to the global economy?
• 2:22
  Speaker 3: Well, currently, we've seen that the global economy has been
• 2:26
  Speaker 3: actually a bit more resilient. And we're seeing that the
• 2:29
  Speaker 3: AI investments, we see in many of New Zealand's trading partners,
• 2:32
  Speaker 3: they're contributing to growth. But we also see fragility. We
• 2:37
  Speaker 3: see that, you know, we see high debt levels, both
• 2:40
  Speaker 3: private and public debt in many countries. We're seeing... that
• 2:45
  Speaker 3: financial markets are volatile currently because they also see these
• 2:50
  Speaker 3: kind of risks. We've seen the geopolitical tensions continuing. So
• 2:56
  Speaker 3: there are global risks. There's also some signs of resilience,
• 3:00
  Speaker 3: and that's benefiting particularly the exporting sector in New Zealand.
• 3:04
  Speaker 3: So export growth has been really, really strong. And that's
• 3:07
  Speaker 3: good because that is contributing to the New Zealand economy currently.
• 3:12
  Speaker 3: But then we also see that You know, it's still
• 3:15
  Speaker 3: really tough on households. We see that household consumption was
• 3:19
  Speaker 3: flat in the latest data that we have. So we're
• 3:24
  Speaker 3: seeing both sides. It's an uneven recovery.
• 3:26
  Speaker 1: How do you feel about the suggestion that you held
• 3:29
  Speaker 1: today because there is an election in a few days' time?
• 3:33
  Speaker 3: It's really important that people understand that, you know, what
• 3:36
  Speaker 3: we focus on on the committee, it is our mandate
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  Speaker 3: and that is to bring inflation back to target over
• 3:44
  Speaker 3: the medium term while avoiding unnecessary volatility in economic output.
• 3:51
  Speaker 3: And that's a little bit of a technical thing to say,
• 3:53
  Speaker 3: but what it means is really that, you know, we
• 3:56
  Speaker 3: will focus on what our mandate is, bringing inflation back
• 4:00
  Speaker 3: to a low and stable level, making sure that households
• 4:04
  Speaker 3: get their purchasing power back, because that will be good
• 4:06
  Speaker 3: for jobs and growth. And we'll do that in such
• 4:09
  Speaker 3: a manner that we try to avoid what I call
• 4:12
  Speaker 3: the unnecessary volatility and output. So we will do it
• 4:15
  Speaker 3: in a gradual manner and just keep on focusing on
• 4:19
  Speaker 3: what is our role in the economy. And that is
• 4:23
  Speaker 3: this low and stable inflation over time.
• 4:25
  Speaker 2: Anna, as always, really appreciate your time. Anna Bremen, Reserve
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  Speaker 2: Bank Governor.