Latest / The SME Stream / Reserve Bank interview: Rates, recession & resilience [VIDEO]

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Reserve Bank interview: Rates, recession & resilience [VIDEO] · The SME Stream

• 0:00
  Speaker 1: The information provided in this program is of a general
• 0:02
  Speaker 1: nature and is not intended to be personalized financial advice.
• 0:05
  Speaker 1: We encourage you to seek appropriate advice from a qualified
• 0:07
  Speaker 1: professional to suit your individual circumstances. Rates are on the
• 0:10
  Speaker 1: way down alongside measured inflation, while unemployments and business insolvencies
• 0:16
  Speaker 1: are tacking up. This is the situation the Reserve Bank
• 0:19
  Speaker 1: engineered through monetary policy, So what has it learned about
• 0:22
  Speaker 1: the impact it can have.
• 0:24
  Speaker 2: We've been confident through that period that monetary policy is working,
• 0:28
  Speaker 2: it's doing its job, it's panning out. The uncertainties have
• 0:32
  Speaker 2: been around the speed and intensity of that.
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  Speaker 1: The Reserve Bank has officially started to loosen its grip
• 0:56
  Speaker 1: on the economy.
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  Speaker 3: Reducing the official cash rate to five point twenty five percent.
• 1:02
  Speaker 1: It was the first cut since twenty twenty. Rates have
• 1:05
  Speaker 1: been on a roller coaster arrived since then as the
• 1:07
  Speaker 1: Reserve Bank tried to get inflation under control, with the
• 1:11
  Speaker 1: ocr going from a record low in twenty twenty up
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  Speaker 1: to the highest level since two thousand and eight and
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  Speaker 1: the space of two years. As a result, we're in
• 1:20
  Speaker 1: a recession according to the Central Bank's own updated projections.
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  Speaker 1: Unemployment is ticking up and hundreds of businesses have gone
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  Speaker 1: and solvent in the past few months. The market saw
• 1:32
  Speaker 1: all this coming. It was heavily pricing in interest rate
• 1:35
  Speaker 1: cuts ahead of the Reserve Bank's move. It's now expected
• 1:39
  Speaker 1: to keep going. The Central Bank's forecast suggests the ocr
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  Speaker 1: will fall to three percent by twenty twenty seven. Such
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  Speaker 1: decisions are made in this room in Wellington, where the
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  Speaker 1: Governor spoke to me earlier this year, including about Howard's
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  Speaker 1: own decisions contributed to what our economy has endured.
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  Speaker 3: Central banks globally, including US, as well as fiscal authority porities,
• 2:01
  Speaker 3: humped money in to keep jobs and livelihoods going as
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  Speaker 3: we work through that period of extreme uncertainty.
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  Speaker 1: While the Reserve Bank is easing off the gas in
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  Speaker 1: regards to rates, it's adding tougher restrictions on mortgage lending.
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  Speaker 1: Could that mean it's concerned about the stability of our
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  Speaker 1: financial system given how hard it's been tested, I asked
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  Speaker 1: the Deputy Governor, Christian Hawksby. At the Financial Services Council
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  Speaker 1: and your conference and Lawlands, you sit on the Manager
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  Speaker 1: Policy Committee. You've been with the Reserve Bank for a
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  Speaker 1: while now. You've been at the forefront of some of
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  Speaker 1: the biggest momentous decisions. And Christian has also told me
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  Speaker 1: that nothing is off limits today, so I'm very excited
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  Speaker 1: for this.
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  Speaker 4: Can I just get a show of hands?
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  Speaker 3: First?
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  Speaker 1: Who he has a mortgage? And it's a bit of
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  Speaker 1: a personal question, but you're all in financial services, so
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  Speaker 1: it's a.
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  Speaker 4: Crime if you don't have one.
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  Speaker 1: Wow, looks like about ninety percent of the room on
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  Speaker 1: behalf of all of those hands. Christian, thank you for
• 3:00
  Speaker 1: cutting the official cash rates. We have the data, so
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  Speaker 1: everyone who put their hand up is very grateful. We're
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  Speaker 1: going to discuss that decision in more detail, but also
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  Speaker 1: I want to talk about what everything that the Reserve
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  Speaker 1: Bank has been through over the sort of rollercoaster ride
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  Speaker 1: with rates and prudential tools, and ultimately what the banks
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  Speaker 1: learn from it. But first of I can sort of
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  Speaker 1: paint the picture of the system and where it's at
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  Speaker 1: right now. We had record mortgages in twenty twenty one,
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  Speaker 1: A number of those, a significant amount of those were
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  Speaker 1: also at six times people's income. We've had a tripling
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  Speaker 1: in retail interest rates since then. Now we have the
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  Speaker 1: tick up and unemployment slight tick up and defaults and
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  Speaker 1: increased business dissolvencies. How stable is the financial system given
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  Speaker 1: all of that, Christian.
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  Speaker 2: Well, you've just given me a plunt for our Financial
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  Speaker 2: Stability Report which is out in November, which covers all
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  Speaker 2: of that ground. We think the financial systems in a
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  Speaker 2: good position it is are resilient, and we've done a
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  Speaker 2: lot of work through time to build up that resilience.
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  Speaker 4: You know, if I was at this conference a few
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  Speaker 4: years ago.
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  Speaker 2: I've been talking about the Capital Review and the way
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  Speaker 2: that we were building up capital requirements and liquidity requirements
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  Speaker 2: for the banking system, Implementing macro prudential tools like the
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  Speaker 2: loan to value restriction and now the debt to income
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  Speaker 2: restriction as well. All of those things have been about
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  Speaker 2: building up resilience in the financial system so it can
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  Speaker 2: weather these ups and downs, because we will go through
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  Speaker 2: economic cycles along the way. What we've been really pleased
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  Speaker 2: about is the way that financial institutions have used that
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  Speaker 2: resilience to stick with their customers through those ups and
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  Speaker 2: downs and communicated very early about if you're having problems,
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  Speaker 2: come and talk to us. We can work with you.
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  Speaker 2: There are things that we can do. We think that
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  Speaker 2: that's one of the benefits that comes from from building
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  Speaker 2: that resilience through time.
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  Speaker 1: What you're very focus died at the Central Bank as well,
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  Speaker 1: is this balance between resilience and competition. I think it's
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  Speaker 1: fair to say we're pretty lucky to have quite a
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  Speaker 1: resilient financial system through everything that we've been through. But
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  Speaker 1: this government now is pretty help beent on increasing competition
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  Speaker 1: in the banking sector, especially after the Commerce Commission's most
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  Speaker 1: recent reports. How will that shift the balance between resilience
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  Speaker 1: and competition and everything else you have to keep in focus.
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  Speaker 2: Yeah, I mean it's a great question, and we've been
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  Speaker 2: very engaged in the Communce Commission's market study, both at
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  Speaker 2: a draft level ander and the final report that's come
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  Speaker 2: out as well. I think, just in terms of the
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  Speaker 2: structure of the banking system and the financial system that
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  Speaker 2: we're at it, there are a lot of returns to scale.
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  Speaker 2: So being big as a financial institution does give you
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  Speaker 2: a competitive advantage because you can spread those costs of
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  Speaker 2: operating over a much wider customer base. So just inherently,
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  Speaker 2: I think the system is one where there is an
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  Speaker 2: advantage to being big, and it is an advantage from
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  Speaker 2: scale as opposed to anything else.
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  Speaker 4: What we're looking at is as.
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  Speaker 2: It chatted about, you know, where is it that we
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  Speaker 2: can on the margin promote our competition as well? Where
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  Speaker 2: can we push ourselves to think do the rules need
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  Speaker 2: to be the same for different types of institutions.
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  Speaker 4: So just to bring.
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  Speaker 2: This to life at the moment, we're consulting on the
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  Speaker 2: Deposit Taker Act. One of the things is the minimum
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  Speaker 2: amount of capital that you need to even be a
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  Speaker 2: deposit taker at the moment, well, under previous rules as
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  Speaker 2: to be a bank you needed at least thirty million
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  Speaker 2: dollars capital then to get a license.
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  Speaker 4: You know, it's a serious business being a bank.
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  Speaker 2: You're taking risks, requires a lot of trust and confidence.
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  Speaker 2: We're looking at that now across both banks and non
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  Speaker 2: bank deposit takers in consultant with the industry and say
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  Speaker 2: what do you think right number is We've put out
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  Speaker 2: five to ten million dollars as a starting point for
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  Speaker 2: that conversation, and that might be a more achievable level
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  Speaker 2: for a startup company that maybe isn't going to provide
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  Speaker 2: all banking services, but might provide some banking services. And
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  Speaker 2: that's I think that's the way of the future, that
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  Speaker 2: there will be different types of financial institutions providing different
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  Speaker 2: pieces of what banks do at the moment.
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  Speaker 1: Interesting on resilience than big guys. Nothing's too big to
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  Speaker 1: fail though.
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  Speaker 2: As a Christian first and foremost, we want to build
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  Speaker 2: resilience such that we don't have failures. But we don't
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  Speaker 2: have a zero failure regime. We can't guarantee that's not
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  Speaker 2: going to happen. So in New Zealand we have a
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  Speaker 2: thing called Open Bank Resolution, and we have for the
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  Speaker 2: big banks we have outsourcing requirements which mean, hey, make
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  Speaker 2: sure that you don't have to rely on your big
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  Speaker 2: Aussie parent for everything that you do.
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  Speaker 4: Make sure that you can be able to stand alone
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  Speaker 4: if you need to.
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  Speaker 2: And Open Bank Resolution gives us the tools to shut
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  Speaker 2: down a bank and reopen it.
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  Speaker 1: As a going concern, there must be at least some
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  Speaker 1: level of concern about resilience of the system given what
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  Speaker 1: it's been through. Because you are making some regulatory changes
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  Speaker 1: of the margin lvrs have been loosened slightly in favor
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  Speaker 1: of bringing in new.
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  Speaker 4: Debt to income restrictions.
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  Speaker 1: Why are you adding new tools into the mix and
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  Speaker 1: what impact do you expect them to have?
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  Speaker 2: Yeh, We're constantly thinking, do we have the right tools
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  Speaker 2: for our mandate and the different aspects of our mandate,
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  Speaker 2: the different responsibilities we have in regards to the macro
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  Speaker 2: prudential tools that you mentioned. Ten years ago, we were
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  Speaker 2: a pioneer in the world. We were the first country
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  Speaker 2: to impose alone to value restriction and that followed the
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  Speaker 2: experience from the GFC that was all about making sure
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  Speaker 2: that borrowers had enough equity in their home such that
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  Speaker 2: if house prices fell, they weren't a negative equity and
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  Speaker 2: the banks had something as collateral there in that situation
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  Speaker 2: roll the clock forward. That's just one aspect of risk
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  Speaker 2: from lending through mortgages. The other, more significant one is
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  Speaker 2: just the ability to service the mortgage through different states
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  Speaker 2: of the world and the future different rules of interest rates,
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  Speaker 2: and that's what our debt to income restrictions help us
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  Speaker 2: hone in. More specifically, what we noticed looking at overseas
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  Speaker 2: is that everyone had followed us in terms of everyone
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  Speaker 2: else's doing macro potential tools as well, but they were
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  Speaker 2: using more than one tool and being able to be
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  Speaker 2: more focused, more targeted, more efficient, and enabling them to
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  Speaker 2: have less restrictive settings if they get in that space.
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  Speaker 4: So we're really pleased that we've got that to hand them.
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  Speaker 2: Think that it's going to be somewhere down the track
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  Speaker 2: and the next economic cycle that we face, they're going
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  Speaker 2: to be a really important.
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  Speaker 1: Part rap well on the economic cycle, and specifically the
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  Speaker 1: forecast that you recently released and your monetary policy statement
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  Speaker 1: for August, it showed that we are already in a
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  Speaker 1: recession and we're going to be in one for the
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  Speaker 1: rest of the year. Is that better worse about on
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  Speaker 1: par with what you expected? And let's also be clear
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  Speaker 1: that that's you know what the Reserve Bank engine, right, yea.
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  Speaker 2: We spent a lot of time looking back at how
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  Speaker 2: the economy has evolved, and you know, whether that's been
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  Speaker 2: roughly what we expected or not.
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  Speaker 4: We actually go back and look at.
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  Speaker 2: Our projections back in November twenty twenty two, and actually
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  Speaker 2: remember standing up in this conference. Around that time, inflation
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  Speaker 2: was over seven percent and it was a real, really
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  Speaker 2: uncomfortable time to be a central banker globally and here
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  Speaker 2: in the New Zealand.
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  Speaker 4: And we knew we needed to do at that point
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  Speaker 4: was cool demand.
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  Speaker 2: We were just in a position where, through that COVID experience,
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  Speaker 2: that had all been trying to soften the blow of
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  Speaker 2: COVID keep cash flowing, confidence going soften the blow That
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  Speaker 2: response ended up being such that people just kept spending,
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  Speaker 2: regardless of the fact that the productive capacity of the
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  Speaker 2: global economy had been cut back, and so there was
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  Speaker 2: all that demand.
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  Speaker 4: We need new neck demand needed to slow that. Projections
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  Speaker 4: in November twenty two show pretty much.
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  Speaker 2: A profile like we've seen, which is going from an
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  Speaker 2: overheating economy to one where things are better balanced and
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  Speaker 2: potentially one where we've got a bit of spear capacity
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  Speaker 2: for a little while as things continue to cool down
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  Speaker 2: and inflation expectations really inchor back where they need to be.
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  Speaker 2: So we've been confident through that period that monetary policies.
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  Speaker 4: Working, it's doing its job, it's panning out.
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  Speaker 2: The uncertainties have been around the speed and intensity of
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  Speaker 2: that you know winds it kind of come through.
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  Speaker 4: Have we seen enough yet? And so we're back in
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  Speaker 4: our last.
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  Speaker 2: Decision, and August was really getting to that level of
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  Speaker 2: confidence that actually have seen enough now we can move
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  Speaker 2: into a different zone in terms of where monetary policy is.
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  Speaker 1: I wanted to ask you very specifically about that level
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  Speaker 1: of confidence because but ahead of that, August Rate card decision,
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  Speaker 1: the market was so heavily pricing that in they were
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  Speaker 1: well ahead of what the Reserve banks on projections were
• 12:38
  Speaker 1: for the OCR track. Following that decision, the noise now
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  Speaker 1: criticizing the Reserve Bank for not moving sooner or at
• 12:45
  Speaker 1: least even indicating that you were thinking about it has
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  Speaker 1: been pretty overwhelm overwhelmingly loud. Why did you a not
• 12:53
  Speaker 1: move sooner? Was there perhaps not enough evidence that gave
• 12:55
  Speaker 1: you that confidence? But also why did you not indicate
• 12:59
  Speaker 1: that you were thinking even of moving at the stage.
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  Speaker 2: Yeah, So, I'd say through this whole period, we've had
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  Speaker 2: a lot of confidence that management policies working, and just
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  Speaker 2: because you see it working through the different bits of
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  Speaker 2: the transmission channel and it's kind of a sequence that
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  Speaker 2: you would expect. So confidence that it was working, confidence
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  Speaker 2: that we're on track.
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  Speaker 4: But the big uncertainties.
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  Speaker 2: Were really around whether it was going to be slower
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  Speaker 2: than we expected in terms of work. Was price setting
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  Speaker 2: behavior going to be sticky? Was it going to be slow?
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  Speaker 2: Was that going to make our job harder? Were we
• 13:36
  Speaker 2: going to have to do more? And that was the
• 13:38
  Speaker 2: risk on the upside. The risk on the downside was
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  Speaker 2: we've done enough but we just had we haven't seen
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  Speaker 2: it come through yet, and it's going to come and
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  Speaker 2: it's just ahead of us. So we're really for right
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  Speaker 2: through that whole period, we're looking at those you know,
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  Speaker 2: are those two risks balanced. As we went into May
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  Speaker 2: earlier in the year, you think worse looking stubborn pricing
• 14:03
  Speaker 2: intentions were still high even though the economy was cooling,
• 14:09
  Speaker 2: That domestic price pressure was still high and was giving
• 14:13
  Speaker 2: us calls for concern. Through the course of June and July,
• 14:19
  Speaker 2: pretty much everything moved at once, So all of those
• 14:23
  Speaker 2: pricing intentions, inflation expectations, headline inflation, all these things came
• 14:28
  Speaker 2: down at the same time that all of the economic
• 14:32
  Speaker 2: activity indicators fell as well. So it gave us gave
• 14:37
  Speaker 2: us that confidence that would reached that level where not
• 14:40
  Speaker 2: only had headline inflation come down.
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  Speaker 4: To a zone that were confident, but.
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  Speaker 2: Capacity was really coming out of the economy, which meant
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  Speaker 2: that in the future inflation would stay down in the
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  Speaker 2: future as well. That happened pretty quickly through June and July.
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  Speaker 2: In our July Monetary Policy review, we did change our
• 15:03
  Speaker 2: tone in terms of acknowledging what we were seeing, and
• 15:06
  Speaker 2: we started to talk about how well policy isn't going
• 15:09
  Speaker 2: to be restrictive forever. At some point we're going to
• 15:13
  Speaker 2: have to sort of start moving into a different zone.
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  Speaker 2: By the time we got to August, markets were pricing
• 15:20
  Speaker 2: what we ended up doing. There will always be economists
• 15:23
  Speaker 2: on one side or other of the story, and we
• 15:26
  Speaker 2: hear all about that.
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  Speaker 1: It's pretty crazy to think that only three years ago
• 15:30
  Speaker 1: the official cash rate had a zero in front of
• 15:32
  Speaker 1: it was at a record low. It feels like a
• 15:34
  Speaker 1: long time ago because look at us now, the average
• 15:37
  Speaker 1: one year mulgage interest rate has a seven in front
• 15:40
  Speaker 1: of it. Ultimately, throughout all of this, what is the
• 15:43
  Speaker 1: reserve band learned from the cycle? Because tools that were
• 15:47
  Speaker 1: kind of just being tested on paper have now actually
• 15:49
  Speaker 1: been tested in practice. So what have you learned about
• 15:52
  Speaker 1: the impact monetary policy can have and also specifically it's
• 15:55
  Speaker 1: correlation to certain parts of the market and economy, Like,
• 15:59
  Speaker 1: how's it?
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  Speaker 2: Yeah, we've done a lot of reflection, as you can imagine,
• 16:04
  Speaker 2: we put out from a legislative point of view, every
• 16:07
  Speaker 2: five years we have to do a review part of
• 16:10
  Speaker 2: what we've learned over that period.
• 16:13
  Speaker 4: Have that externally reviewed.
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  Speaker 2: You know, that's been pretty timely given what we've come
• 16:19
  Speaker 2: out of, so lots of lessons there. I think that,
• 16:24
  Speaker 2: you know, some of the lessons around the tools are
• 16:26
  Speaker 2: that actually we've got the tools that we need in
• 16:30
  Speaker 2: the sense of a lot of what we did. You know,
• 16:35
  Speaker 2: there were new tools, they had new acronyms, all of
• 16:37
  Speaker 2: that sort of stuff, but ultimately they were about different
• 16:41
  Speaker 2: ways that we can keep interest rates down. And that's
• 16:45
  Speaker 2: what muniture policy is about. It's when stillness is needed,
• 16:51
  Speaker 2: using different tools to keep interest rates as low as
• 16:53
  Speaker 2: you can, when you need to call things, you know,
• 16:56
  Speaker 2: lifting interest rates into a restrictive zone to some extent.
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  Speaker 4: You know, we know we've got the tools.
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  Speaker 2: A lot of the lessons were actually about where we
• 17:06
  Speaker 2: need to build capability, things that we need to understand
• 17:09
  Speaker 2: better into the future if we're in a similar situation again.
• 17:14
  Speaker 2: I think one of those areas is around you know,
• 17:19
  Speaker 2: we're very experienced on the economic cycle, the ups and
• 17:23
  Speaker 2: downs of consumption and investment and all that's our bread
• 17:26
  Speaker 2: and butter, but really having a better capability when it
• 17:30
  Speaker 2: comes to understanding the productive capacity of the economy. What
• 17:34
  Speaker 2: happens when you shut the border is what happens when
• 17:37
  Speaker 2: there are disruptions to supply chains, all of these things
• 17:40
  Speaker 2: which were very very prominent and will be more prominent
• 17:45
  Speaker 2: in the future of climate change and more more disruption
• 17:48
  Speaker 2: to the supply side of the economy. Also building capability
• 17:53
  Speaker 2: and understanding on the impacts of fiscal policy. You know,
• 17:59
  Speaker 2: there can sensus approach over the last twenty or thirty
• 18:02
  Speaker 2: years has been that monetary policy is in the lead
• 18:05
  Speaker 2: when it comes to cyclical management of the economy. Fiscal
• 18:09
  Speaker 2: policy just does its thing, the automatic stabilizers kick in,
• 18:12
  Speaker 2: you know, Texas for benefits go up, but you leave
• 18:17
  Speaker 2: the active management to monetary policy. What we learned through
• 18:23
  Speaker 2: the COVID experience is that when you get close to
• 18:25
  Speaker 2: the zero bound on interest rates, monetary policy needs friends
• 18:30
  Speaker 2: and some of your stimulus needs to be really targeted.
• 18:34
  Speaker 4: Then you're into the active fiscal stimulus mode.
• 18:39
  Speaker 2: And there's a lot of learning to do in terms
• 18:46
  Speaker 2: of how effective that is, the impact that has, and
• 18:49
  Speaker 2: I think that was probably the big the big lesson
• 18:53
  Speaker 2: through the COVID experience was how potent fiscal policy can
• 18:57
  Speaker 2: be when you have something like the wage subsidy that
• 19:02
  Speaker 2: creates that attachment between workers and their employers and gives
• 19:06
  Speaker 2: people confidence to keep spending.
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  Speaker 1: Do you think out of that, then the Reserve Bank
• 19:11
  Speaker 1: perhaps needs to obviously you're independent, but perhaps be more
• 19:13
  Speaker 1: vocal on saying don't do that, it's going to be stimulatory.
• 19:18
  Speaker 2: What we're looking at more is a research program around
• 19:23
  Speaker 2: fiscal monetary coordination, So working together to understand what those
• 19:28
  Speaker 2: tools are, what their costs and benefits are, the different
• 19:34
  Speaker 2: times that they would be used, sort of building us
• 19:38
  Speaker 2: a type of playbook together of in these different situations.
• 19:42
  Speaker 2: This is what would happen first, this is what would
• 19:44
  Speaker 2: happen second. But through all of that you need to
• 19:48
  Speaker 2: respect the independence of the two organizations. We're independent for
• 19:53
  Speaker 2: a reason, and so that needs to be incorporated as well. Also,
• 20:01
  Speaker 2: you know, it's the Treasury's job to advise the Ministry
• 20:05
  Speaker 2: of the Finance of the day what the fiscal strategy
• 20:08
  Speaker 2: should be or the fiscal response should be. But ultimately
• 20:12
  Speaker 2: that needs to be left with the Ministry of the
• 20:15
  Speaker 2: Finance and the Day to make that.
• 20:16
  Speaker 4: Core.
• 20:17
  Speaker 1: On inflation and specifically inflation targeting, all central banks mostly
• 20:22
  Speaker 1: said that it was going to be transitory. I think
• 20:24
  Speaker 1: we can all kind of clearly agree now that it
• 20:27
  Speaker 1: wasn't and when Gangbusters stayed high for much longer than
• 20:30
  Speaker 1: anybody expected. Some parts certainly now proven quite sticky to
• 20:33
  Speaker 1: remove out of our economy effectively. What's the lesson on
• 20:37
  Speaker 1: the central bank's actual ability to a control, a understand
• 20:42
  Speaker 1: inflation and be controlled.
• 20:45
  Speaker 2: Yeah, I think we're all in the same boat in
• 20:48
  Speaker 2: the sense of, you know, we play the cards that
• 20:51
  Speaker 2: were dealt with and what we know at a time,
• 20:54
  Speaker 2: and so we go to the lengths of putting out
• 20:57
  Speaker 2: a projection to say, you know, this is.
• 21:00
  Speaker 4: What we know about the economy at the moment. These
• 21:03
  Speaker 4: are the.
• 21:03
  Speaker 2: Assumptions we're making going forward, and here's our you know,
• 21:07
  Speaker 2: here's our best foot forward in terms of what we
• 21:09
  Speaker 2: think the outlookers and what we need to do.
• 21:12
  Speaker 4: Because of that.
• 21:13
  Speaker 2: Outlook you know, then things change and we have shops come.
• 21:18
  Speaker 4: Along, events happen.
• 21:20
  Speaker 2: I think the big lesson over that post COVID experience
• 21:25
  Speaker 2: is just the size and the impact of supply side
• 21:30
  Speaker 2: shops on the economy and what they can do. And
• 21:35
  Speaker 2: we just hadn't experienced that before. The whole economy in
• 21:40
  Speaker 2: New Zealand and globally going into hibernation.
• 21:43
  Speaker 4: You know, people all getting sent home.
• 21:47
  Speaker 2: Just the way that that reduces the whole wealth of
• 21:52
  Speaker 2: the globe in terms of producing less things. The way
• 21:56
  Speaker 2: that the supply side disruptions through.
• 22:01
  Speaker 4: That period where you know, you go from a period where.
• 22:04
  Speaker 2: It's normal to have one ship docked outside Long Beach,
• 22:09
  Speaker 2: Los Angeles, and you went to a situation where there
• 22:12
  Speaker 2: are a hundred ships docked out, one outside one harbor
• 22:17
  Speaker 2: in the US. It's just an indication of how disrupted,
• 22:21
  Speaker 2: you know, getting goods and services around the world was
• 22:25
  Speaker 2: so throwing the Ukraine wore all of these things. I
• 22:28
  Speaker 2: think that's been one of the big lessons, is just
• 22:32
  Speaker 2: the impact that the supply side can have on that story.
• 22:36
  Speaker 4: And it's it's out of our control.
• 22:38
  Speaker 2: In the sense we've looked back and thought, well, if
• 22:41
  Speaker 2: we'd moved monetary policy quicker, you know, if we moved
• 22:44
  Speaker 2: a few quarters ahead and got on top of it already.
• 22:47
  Speaker 4: Having been the first central.
• 22:49
  Speaker 2: Bad to be tightening, we still would have had inflation
• 22:52
  Speaker 2: with a five or six on the front of it.
• 22:55
  Speaker 1: Well, one percent point is quite a big difference, the
• 22:57
  Speaker 1: difference between six and then seven percent quite keenly foult
• 23:01
  Speaker 1: on that to call it.
• 23:03
  Speaker 2: Yeah, well, and these are just bullpark figures and that's
• 23:07
  Speaker 2: assuming that we had perfect full sight, you know, that
• 23:09
  Speaker 2: we knew something that we didn't know at the time.
• 23:13
  Speaker 2: But it's to say that we focus on two percent,
• 23:17
  Speaker 2: we've got a one to three percent range. We focus
• 23:19
  Speaker 2: on two percent because that gives us the best chance
• 23:22
  Speaker 2: to stay in that range, simple as that. But that
• 23:25
  Speaker 2: doesn't mean that inflation is going to be never going
• 23:28
  Speaker 2: to be outside that range, because there is. You know,
• 23:30
  Speaker 2: that's just a volatility that we're dealing with.
• 23:33
  Speaker 4: Our job is to.
• 23:35
  Speaker 2: Get it back and give people confidence that it's going
• 23:38
  Speaker 2: to be anchored around there going forward. And that's what
• 23:41
  Speaker 2: we're seeing now in terms of how inflation expectations have
• 23:45
  Speaker 2: come down, pricing intentions have come down. You know, those
• 23:48
  Speaker 2: surveys are saying that over a five to ten year period,
• 23:51
  Speaker 2: people still have confidence that we will be anchored around
• 23:54
  Speaker 2: two percent.
• 23:55
  Speaker 1: So give us a figure, where is the OCRE going
• 23:57
  Speaker 1: to land this cycle free sign.
• 24:00
  Speaker 2: So our projections are that the OCR comes down to
• 24:04
  Speaker 2: somewhere around three percent, and that's because that's what we
• 24:07
  Speaker 2: think in neutral OCR setting is over that longer term horizon,
• 24:14
  Speaker 2: and that's predicated on everything working, everything coming.
• 24:18
  Speaker 4: Back to where it should over the long run.
• 24:21
  Speaker 2: There being no new shocks that come along, you know,
• 24:23
  Speaker 2: all of those assumptions that sit there. You know, when
• 24:26
  Speaker 2: you think about it, three percent is the neutral OCR,
• 24:31
  Speaker 2: and we've had the OCR up over five percent to
• 24:33
  Speaker 2: be in restrictive territory. You know, it means that you
• 24:36
  Speaker 2: can quite easily be in a world over the next
• 24:39
  Speaker 2: five or ten years where you know, the OCR is
• 24:42
  Speaker 2: back between zero to one percent, depending on what's in
• 24:47
  Speaker 2: front of us and what we're dealing with at the time.
• 24:49
  Speaker 4: So we need to prepare for those contingencies.
• 24:52
  Speaker 1: The only certainty at the moment is uncertainty. Run exactly
• 24:56
  Speaker 1: beast to be prepared for absolutely anything. Thank you sat
• 24:58
  Speaker 1: for your time for stall to speak.
• 25:00
  Speaker 4: Happy to have you here. Thank you so much.
• 25:03
  Speaker 2: Stands up
• 25:13
  Speaker 3: Hmm.