Latest / Best of Business / Brad Olsen: Infometrics Principal Economist on the Reserve Bank cutting the OCR by 50 basis points

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Brad Olsen: Infometrics Principal Economist on the Reserve Bank cutting the OCR by 50 basis points · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks. There'd be
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  Speaker 1: follow this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: Good Afternoon. Banks have immediately started cutting their mortgage rates
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  Speaker 2: after the Reserve Bank today cut the official cash rate
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  Speaker 2: by fifty basis points, so the ocr is now sitting
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  Speaker 2: at four point two five percent. The Reserve Bank Governor
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  Speaker 2: Adrian Or acknowledged it's been a tough time for New.
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  Speaker 3: Zealand Terra has you know, we've been doing it tough
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  Speaker 3: over the last couple of years. We've been part responsible
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  Speaker 3: for that. But the higher interest rate, you know, inflation
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  Speaker 3: is evil. We have been making sure we can squeeze
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  Speaker 3: it out of the economy. I know it's been challenging
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  Speaker 3: for many many people and will continue to be so
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  Speaker 3: overcoming months.
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  Speaker 2: Infamtrix principal economist Brad Olson's with me and now, hey, Brad.
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  Speaker 4: Good evening.
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  Speaker 2: Are you surprised they didn't think about seventy five basis
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  Speaker 2: point cut at all.
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  Speaker 4: I'm a little bit surprised they didn't really consider anything
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  Speaker 4: apart from fifty. You know, the governor highlighted in his
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  Speaker 4: press conference that they sort of thought fifty was the
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  Speaker 4: right place and so they didn't really toss up doing
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  Speaker 4: anything different. You know, they didn't toss up going smaller
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  Speaker 4: at twenty five, that didn't toss up going larger at
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  Speaker 4: seventy five. So fairly confident view from the Reserve Bank
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  Speaker 4: that fifty was the right move. And look, I don't
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  Speaker 4: think anyone will disagree that it's, you know, a healthy
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  Speaker 4: decline that's coming through. The question I think for now
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  Speaker 4: is we're too next and how quickly there's now a
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  Speaker 4: three month break before the Reserve Bank meets again. The
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  Speaker 4: governors sort of seemed to imply or certainly didn't shoot
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  Speaker 4: down the view that fifty basis points in February almost
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  Speaker 4: seems to be the baseline case or the live option.
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  Speaker 4: But a lot of economic forecast is wondering when do
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  Speaker 4: we get back to those sort of more normal considered steps,
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  Speaker 4: given the economy is already starting to show some early
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  Speaker 4: signs of turning around. So right move today, very sensible
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  Speaker 4: sort of pick and sort of but looking into the
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  Speaker 4: future a bit more uncertain.
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  Speaker 2: Yeah, what makes you think that he's considering a fifty
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  Speaker 2: because it sounded like a twenty five to me in February.
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  Speaker 4: Well, he sort of highlighted that actually, you know, when
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  Speaker 4: he looked through the numbers, he sort of said, fifty
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  Speaker 4: felt right, and particularly considering the forward track, that leaves
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  Speaker 4: the door open for another fifty point cut. I mean
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  Speaker 4: that that was his own words, so I think he
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  Speaker 4: sort of opened they've got options, and that is important
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  Speaker 4: because for such a long time it sort of felt
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  Speaker 4: like we were always sort of on the back foot.
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  Speaker 4: I think the Reserve Banks sort of wrestled back a
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  Speaker 4: bit more control here, which is important. Inflation are now
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  Speaker 4: well under control, the unemployment rate increasing, but not quite
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  Speaker 4: as steeply as might have been fared again, interest rates
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  Speaker 4: coming down, some early signs that spending is turning around,
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  Speaker 4: so all of that will be encouraging for the bank.
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  Speaker 4: But also, you know, they've cut just how much potential
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  Speaker 4: they think is out there in the economy in the future.
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  Speaker 4: So still some pretty difficult times and people won't immediately
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  Speaker 4: refix onto those lower mortgage rates. But again looking up
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  Speaker 4: over time.
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  Speaker 2: Brad keew we Bank's argument is that at four point
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  Speaker 2: twenty five it's still restrictive, and even the Reserve Banks
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  Speaker 2: governor said that himself today it's still a restrictive level.
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  Speaker 2: He's still strangling the economy to an extent. Kee We
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  Speaker 2: Bank reckons you have to get to about three point
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  Speaker 2: five before it's neutral. What's the argument for keeping us
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  Speaker 2: in a restrictive setting when we are so stuffed at
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  Speaker 2: the moment, you know?
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  Speaker 4: I think the Reserve Bank is sort of also pretty cautious,
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  Speaker 4: and they did outline in their statement today as well,
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  Speaker 4: they're sort of worry about some of those inflationary pressures
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  Speaker 4: that could persist, could spike back up, but more importantly
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  Speaker 4: some of that sort of more medium term stuff where
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  Speaker 4: you don't sort of want to be sort of going through.
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  Speaker 4: And we have seen this from the Reserve Bank and
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  Speaker 4: you know years gone past, where they sort of either
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  Speaker 4: cut too much, raised too much and then have to
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  Speaker 4: reverse out. But I think that the big question, right
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  Speaker 4: is that if they go by fifty again in February,
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  Speaker 4: that only leaves them maybe one more twenty five basis
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  Speaker 4: point cut. And I get the thing for that we're
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  Speaker 4: looking at at the moment as economists is that fifty
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  Speaker 4: is still like a bigger move, and so to go
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  Speaker 4: from sort of you know, fifty then to twenty five
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  Speaker 4: then to just nothing would be quite an abrupt maybe
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  Speaker 4: end to it. So again that sort of question is
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  Speaker 4: does the Reserve Bank care if there's an abrupt end
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  Speaker 4: or do they say, actually, look we've got interest rates
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  Speaker 4: back to where we want them to be, and so
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  Speaker 4: if it's a fifty and then done, maybe that's it.
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  Speaker 2: Okay, Well, Brad, thanks very much, appreciate it. Brad Awsoon,
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  Speaker 2: Infametrix Principal Economist.
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