Remy Morgan: Milford Asset Management expert on the market reactions to the 50bp OCR cut

The Reserve Bank today slashed the OCR by 50 basis points to 2.5 percent, prompting markets to make readjustments.

This recent cut wasn't full priced in, and it's got some experts re-thinking their OCR outlooks ahead of the end of the year.

Milford Asset Management's Remy Morgan explains further.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Either. Have you looked at the exchange rates since the
OCR announcement? Meaning fuel and everything which is important will
be more expensivele bears, Thank you very much for bringing
us to this. Right now, it's quarter past six and
Remy Morgan Milford Asset Management is with us. Hi, Remy, Hi, Heather.
How did the market react to that decision today?

Speaker 3 (00:33):
We saw markets readjusting their interest rate expectations lower in
response to that fifty basis point cut, and that was
because it wasn't fully priced in. We saw market expectations
for the November decision adjusting to fully price another twenty
five basis point cut. We saw wholesale swapbrates offered lower. Notably,
that key two year rate was down around seven basis

(00:55):
points shortly after the release. And the other key call
out was that INZA dollar, which we can further immediately
dropping around one percent against the US dollar.

Speaker 2 (01:03):
Yeah. What about the INSIDEX have we seen any major
moves there? Yeah?

Speaker 3 (01:07):
So over the low last week leading into today, the
INSIDEX moved sharply upwards and finally above record highs. Again,
it's only taken about four years, and that was likely
in anticipation of more rate cuts to come following that
week GDP print that we had the other week. Some
notable moves in share prices that are up around ten
percent over the past week are in cyclical retail companies

(01:31):
like sky City and Catman, do brands, housing linked retirement
companies Ryman and Somerset, and real estate companies, and that
larger fifty basis point cut today further supported moves higher.
We saw the index closing zero point two five percent
on the day, marking a rally of over two percent
the past week, and closing on a fresh new high.

Speaker 2 (01:53):
How important do you think was the detail that the
Reserve Bank released for the market.

Speaker 3 (01:57):
It was just a policy announcement this time, and not
a full statement with a new set of Reserve Bank
forecasts as we had back in August, And because it
wasn't fully clear to the market which way the RBNZ
would go, that made both the decision and the signals
that the release sent to the market even more important.
Now the messaging signaled openness to cut further, and I

(02:18):
think that supported that market move lower In wholesale interest rates,
which helps to give that intended transmission effect.

Speaker 2 (02:25):
Okay, where do we go from here?

Speaker 3 (02:27):
For companies in the insed X, particularly those more interest
rates sensitive and consumer focused companies, there might be some
further optimism to come as those lower interest rates continue
to transmit through the economy, but it is important to
remember that today's market reactions are a point in time
reaction and developments in the data and the economy can

(02:48):
see markets move potentially either way.

Speaker 2 (02:50):
In response, Remy, thanks very much, appreciate it. Remy Morgan
Milfit Asset Management.

Speaker 1 (02:54):
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