Latest / Best of Business / Liam Dann: NZ Herald Business Editor on the OCR being cut by 50 basis points to 4.75%

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Liam Dann: NZ Herald Business Editor on the OCR being cut by 50 basis points to 4.75% · 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: Well, the Reserve Band cams cut the official cash rate
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  Speaker 2: by fifty bases points from five point two five percent
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  Speaker 2: to four point seven five percent. Bank economists had predicted
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  Speaker 2: it but thought a twenty five point drop was just
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  Speaker 2: as likely. So in studio we do have New Zealand
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  Speaker 2: Heeral Business Editor at Large Liam dan get Alam.
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  Speaker 3: Hey, guys, Lamb, what does this mean for the economy, Well.
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  Speaker 4: It means it's quite bad. I mean, we were celebrating here,
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  Speaker 4: but they're cutting it because the economy is in terrible shape.
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  Speaker 4: So that's probably worth remembering. But it is probably good
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  Speaker 4: news really for people like me who are fixing their
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  Speaker 4: mortgage next week. So that's sort of money in the
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  Speaker 4: pocket for mortgage holders and a lot of businesses that
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  Speaker 4: are struggling with really high debt levels. So there's two
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  Speaker 4: things for businesses. One is their own debt, you know,
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  Speaker 4: and then the other one is if consumers have a
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  Speaker 4: bit more money in their pocket, they might perk up
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  Speaker 4: and spend a bit more. But yeah, I mean I
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  Speaker 4: think it's a it's a fairly. You know, there was
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  Speaker 4: a lot of expectation that it was going to be
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  Speaker 4: fifteen basis points this time and people would have been disappointed.
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  Speaker 3: So yeah, how much does that affect the decision? The talk,
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  Speaker 3: because I feel like fifty basis points was just repeated
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  Speaker 3: by everyone. A couple of people said twenty five actually,
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  Speaker 3: and some people said seventy five.
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  Speaker 2: You said seventy five.
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  Speaker 3: I was hoping for seventy. It was of a similar
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  Speaker 3: position as you.
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  Speaker 4: There was one commentator on here on the Herald who
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  Speaker 4: said seventy five and probably did the rounds. But it
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  Speaker 4: shouldn't affect things at all market pricing does. They do
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  Speaker 4: pay attention to market pricing, and the markets are always
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  Speaker 4: very excited about, you know, looking forward, and so there's
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  Speaker 4: a lot of expectation about fifty this time and then
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  Speaker 4: fifty next time in November, going into the summer, you know.
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  Speaker 4: Having I think they've been really tight lipped about that.
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  Speaker 4: They just say they'll watch and do what market conditions require,
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  Speaker 4: no clues as to what's coming up. Yeah, I don't
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  Speaker 4: think that expectations should have too much impact. To be fair,
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  Speaker 4: the bank economists all went fifty, but they all said
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  Speaker 4: it was a lineball call, so they would have been
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  Speaker 4: now going, Oh well, it wasn't such a surprise if
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  Speaker 4: they'd gone the other way. So it's a bit of
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  Speaker 4: a game all of that. To some extent, It.
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  Speaker 2: Certainly is how fast do you think the banks will
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  Speaker 2: move on this? I know some banks moved pretty early,
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  Speaker 2: which he might have been a bit of a gamble,
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  Speaker 2: maybe not, but well, a marketing ployer.
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  Speaker 4: I mean, you know, you can see in the meeting
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  Speaker 4: asb put out a statement and cut some rates right
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  Speaker 4: before it, and then they put another one out five
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  Speaker 4: like one minute after that, So you know, there's a
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  Speaker 4: lot of gamesmanship there, and there's a lot of competition.
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  Speaker 4: But yeah, hopefully it passes through. And if the markets
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  Speaker 4: keep pushing towards expectations and more cuts, and the banks
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  Speaker 4: also get money offshore, and the us Fed's expected to
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  Speaker 4: cut again, then we should start to see, you know,
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  Speaker 4: a good chunk of this passed through. They're always a
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  Speaker 4: bit quicker at getting the deposit rates down. Of course,
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  Speaker 4: if you're an older listener and you've got savings, it's
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  Speaker 4: not all good news. And you know, so I'm usually
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  Speaker 4: comfortable there. It does take a while for it to
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  Speaker 4: flow through the economy because people are fixed and they
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  Speaker 4: don't necessarily have their rates coming up next week.
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  Speaker 3: Yeah, well, I guess an economy's perception, isn't it, And
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  Speaker 3: I'm feeling richer all of a sudden, I'm feeling better off,
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  Speaker 3: so I'll probably spend more. And that's really the thing,
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  Speaker 3: isn't it.
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  Speaker 1: Well, well, that is it.
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  Speaker 4: I mean, so it's how much of a bump we
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  Speaker 4: get from that confidence knowing that the direction is right,
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  Speaker 4: Knowing that, okay, it might not be until people are fixing,
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  Speaker 4: and you know, December or whatever, they can still see,
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  Speaker 4: oh there's an extra fifty bucks or extra.
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  Speaker 1: And see the future.
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  Speaker 3: You can see that the future looks brighter in terms
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  Speaker 3: of your repaintment.
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  Speaker 4: So I think you know, we're, at the very least
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  Speaker 4: we're coming out of this awful, long, grinding economic cycled.
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  Speaker 4: You know, through COVID and the inflation. There'll be something
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  Speaker 4: else come along and freak us out soon.
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  Speaker 3: But Liam, I've got a slightly deeper and potentially more
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  Speaker 3: punishing question. I read your fantastic book Barbecue Economics, I
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  Speaker 3: massively recommended to anyone, and I think I actually sent
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  Speaker 3: you a text on this issue because I still couldn't
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  Speaker 3: understand it. Now, does the official cash rate actually influence
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  Speaker 3: the banks because their money anyway you explain it.
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  Speaker 4: This is a good question, a good question. It's actually
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  Speaker 4: gets very complicated that when you do when you do
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  Speaker 4: a transaction, you buy or sell anything, usually you know,
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  Speaker 4: it's one bank to another. So the banks to all
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  Speaker 4: these transactions with each other, and at the end of
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  Speaker 4: the night, it doesn't all match up, right, I'm really
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  Speaker 4: paraphrasing this. I hope there's no serious economy something, but yeah,
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  Speaker 4: and so whatever it doesn't match up to, like, they'll
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  Speaker 4: either need to borrow some or you know, to make
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  Speaker 4: it match up. Overnight, so there's an overnight lending rate
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  Speaker 4: and that is set by the Reserve Bank, which effectively
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  Speaker 4: has a state sanctioned monopoly on the wholesale interest rate. Basically,
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  Speaker 4: so the government says, you've got the monopoly on the
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  Speaker 4: wholesale instrate you can set this overnight bank rate. So
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  Speaker 4: whatever that is, that's the lowest rate going in New Zealand.
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  Speaker 4: So the OCIA is the lowest rate going in New Zealand.
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  Speaker 4: Anything else on the top of that is what businesses
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  Speaker 4: decide to do with it.
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  Speaker 2: So very interesting clear as much for me as a
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  Speaker 2: non economist, but yeah, and it made seems good to
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  Speaker 2: go deep. Yeah that's right, Liam Dan, Thank you very much.
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  Speaker 2: We'll catch you again soon.
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  Speaker 4: Cool. Thanks guys.
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  Speaker 2: That is New Zealand here or Business Editor at Large
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  Speaker 2: Liam Dan. Well, I suppose the big question we want
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  Speaker 2: to put to the audience now is how you're feeling.
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  Speaker 2: I mean, Heath, you're ready to go spend some time.
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  Speaker 3: I'm ready. I'm ready to get loose. I'm ready to
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  Speaker 3: open the purse strings. I'm ready to buy some linen sheets.
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  Speaker 3: I'll be booking into several restaurants. I'll be going loose.
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  Speaker 3: But I've timed it really well. I was talking about
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  Speaker 3: it before. It's kind of like the Ta b and actually,
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  Speaker 3: going back to your book, New Zealand does not all countries,
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  Speaker 3: do you know a lot of countries just float all
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  Speaker 3: the time. But it's quite a thing in New Zealand,
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  Speaker 3: isn't it where we're worried about that. It's we love it.
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  Speaker 3: It's like betting yea and you feel like you're either
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  Speaker 3: win or you lose. And right now I'm feeling like
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  Speaker 3: i made the right decisions. So I've got a huge
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  Speaker 3: amount of dopamine running through the system that I feel
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  Speaker 3: like I've cracked the system.
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  Speaker 2: I have a big casino night, I have you.
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  Speaker 3: I'm still working to pay the mortgage constantly, but right
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  Speaker 3: now I feel like I've cracked the system.
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  Speaker 2: Just a final question for you each year, because Adrian
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  Speaker 2: or made a point that he wanted unemployment to go
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  Speaker 2: up to try and rebalance the economy. So he's pretty
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  Speaker 2: happy at this stage. He's feeling like that those things
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  Speaker 2: are sitting about right, that he can make these carts
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  Speaker 2: and a.
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  Speaker 4: Monte to go up. But there is a sort of
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  Speaker 4: correlation between unemployment and inflation. They need inflation to go down.
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  Speaker 4: It's all about slack in the economy, you know, really,
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  Speaker 4: it's just and they're removing they remove the slack and
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  Speaker 4: the economy with high interest rates. Now they're letting a
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  Speaker 4: little bit more slack in the economy. But unemployment takes longer.
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  Speaker 4: Those businesses that are struggling, they don't want to sack
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  Speaker 4: people that those decisions tend to be at the end
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  Speaker 4: of the economic cycle. So you probably see that get
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  Speaker 4: a bit worse for a while.
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  Speaker 3: And of course some inflation is necessary for an economy
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  Speaker 3: to grow.
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  Speaker 4: Yeah, don't get me started on what happens when prices
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  Speaker 4: start going down. Deflation sounds great, it's not good.
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  Speaker 3: Start roller coaster. It sounds like New Zealand Citizen.
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  Speaker 2: Absolutely for more.
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