Cameron Bagrie: Independent economist comments on interest rate cuts

An argument has been made that the government has ‘overdone it’ with interest rate cuts.  

Economist Cameron Bagrie told Ryan Bridge that the Reserve Bank has a difficult balance to maintain. 

'Giving the economy a little bit more juice is not without risk...and headline inflation is moving up.’ 

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Infametrix Brad Olsen's outfit reckons we might be overcooking it
with interest right cuts. They say the cats have gone
so far that they've done their job. The effects won't
be felt until mid to late next year. Too much
stimulus and we get all too excited again and then
facing tickles up and then rate hikes from late next year.
Independent economist Cameron Bagriy with me this morning to chat

(00:38):
about it.

Speaker 3 (00:38):
Morning, Cameron, Oh, good morning, Nice to see you back.

Speaker 2 (00:42):
Yeah, good to be back. What's the situation here?

Speaker 1 (00:46):
Do you agree with this?

Speaker 3 (00:48):
You can argue both sides. If you look at the
gross side of the equation and the gross side of
the equation, the New Zealan at the moment are still
pretty a name it. So the reserve ends well justified
by look and they climbing it up to the defaibilat
and giving a little bit of a shock so to
speak of the form of a laugh push your cashrop.
The other side is that giving the economy a little

(01:10):
bit more juicio is not without risk and head by
inflation is moving up. Core inflation looks a lot more contained.
But this is the Reserve Bank that they just need
to be a little bit weary here, because if this
economy does kicking the gear, and I think it is
going to kick in the gear into twenty twenty six,
you could hit some capacity constraints pretty quickly. You hit

(01:31):
capacity constraints pretty quickly in FLAC starts to wear its
ugly head again. And for a lot of people out there, Brian,
most people do not think head by inflation is two
because you're seeing your electricity bill move up at a
double digit clip, your rates bills moving up at a
double digit clip, medical bills, they cost of food out
there across the country as well.

Speaker 2 (01:53):
What's worse for the Reserve Bank going hard now and
risk reversing later, or you know, letting the pain drag
on and staying on one course.

Speaker 3 (02:02):
It's a Clayton's choice. We're welcome to being a central
bank and they need a lot of it's about risk management,
and the Reserve Band obviously decided after getting that week
GDP number for Q two, but they needed up the
NTY a little bit. But if you go through the
adocument you know their statement, their minutes, they were still
wary about some of those inflation risks because, as I said,

(02:23):
you know, head by inflation is moving up. They're not
focused on head by inflation. They're focused on core inflation
that looks a lot more sedate. But there's a whole lot
of things out there at the moment that the reserve
bank can't control. You know, one of the big problems
for a central bank is it but they sort of
know where the economy is through a demand lens, but
they don't know where the economy is through a supply lends. Yeah,

(02:44):
this is how last the economy can grow, the combination
of immigration, capital, the combination in line with productivity growth.
And what we know is that that line is a
very weak number. And if that line is even weaker
than what the reserve band is estimating, we get hit
capacity constraints very early in twenty twenty six. On the
assumption that this economy is going to kick into gear,

(03:06):
there's a whole lot more people roll the fose faxed mortgages,
and we know there's a lot of stimminess in the pipeline.

Speaker 2 (03:11):
When it kicks into gear because it's been so long
and dragged out. When it kicks into gear, does it
kick in it third gear? Are we going to suddenly
bolt out the gates.

Speaker 3 (03:23):
I'm not convinced we getting bolt out of the gate.
And one of the reasons I'm not convincing in a
bolt out of the gate is the economy is not
just driven by what's called the cyclical leaders and a
cyclical letters of things such as interest rates coming down,
how much money to get it's pumping in. It's how
much money the farmers have got. That's something yesel on dollar.
It's the likes of that three point two bid, and

(03:44):
that could hurt farmers, wallets in the form of that
consumer business. So we know there's a there's some pretty
big checks that they're going to come in. But to
get the economy ready kicking into gear, you need to
see the housing in a pretty pretty good space. Because
the housing market's got about three speeds fIF neutral and reverse.

(04:04):
If you've got a shortage of supply, you can't interstrate
said you can have book you one how of a
construction boom. You know what we got out there at
the moment is if population growth relative to supply I
building consents, it still looks like we're building too many
houses as opposed to not enough housing. Valuations are not
exactly what you're called cheap. There's a whole lot of
other economic fundamentals across this economy. If you look at

(04:28):
our infrastructure, you look at shortage of energy, if you
lot at what's going on in regard to the quality
of the roading system. These things just hold the economy
back through a structural lens. And these are areas that
the Reserve Bank cannot fix by cunning interest rates. Only
time can through some good economic policy.

Speaker 2 (04:47):
Cameron Bagri and lead economists at Bagger Economics appreciate your time.
This morning is always interesting stuff.

Speaker 1 (04:52):
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