The Reserve Bank has lifted the Official Cash Rate for the first time in more than three years.
It's raised the OCR 25 basis points to 2.5 percent.
The Monetary Policy Committee's six members all agreed to raise the cash rate - despite divided opinions from economists.
Infometrics Principal Economist Brad Olsen says the Reserve Bank will be looking to get the OCR down to a more 'normal' level - and this increase is the first step.
LISTEN ABOVE
See omnystudio.com/listener for privacy information.
Listen
Watch
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:09):
You're listening to a podcast from News Talk zed B.
Follow this and our wide range of podcasts now on iHeartRadio.
Speaker 2 (00:16):
The Reserve Bank's Monetary Policy Committee is hiked the official
cash rate for the first time in more than three years.
It's raised the OCA twenty five basis points to two
point five percent. So I'll take back that hiked. They
didn't hike it, they raised it. Hiked would suggest that
they'd gone up an unprecedented amount. They've raised it twenty
five basis points to two point five percent. Economists have
(00:39):
been divided on whether the committee would hold the cash
rate or raised it, and we're joined now by Brad Olson,
CEO and principal economist at Inflametrics. Brad, they raised it
two point five y.
Speaker 3 (00:55):
Well effectively, they think now is the time to start
to get things moving up. They're worried about the potential
that over the long term they need to get interest
rates back to a bit more of a I guess
comfortable position where they're not adding anything into the economy,
they're not taking anything away. Of course, last time they
met back in May, they said quite clearly there was
(01:17):
a split vote, but there was sort of questions around
where they need to go. Yes, you've now had the
sort of immediate inflationary spike from the Middle East conflict
has gone. The worry though, is that sort of those
more medium term economic shocks might come through the biggest
one though, And I think one of the reasons that
they probably opted to pull the trigger today rather than
(01:37):
anything else is that in recent weeks you have actually
seen longer dated interest rates, so you look at the
likes of, you know, your two to five year mortgage rates,
they've actually pulled back. And the Reserve Bank did say
quite specifically that the increasing the ocr at this meeting
is intended in part to avoid a further easing in
financial conditions. So they don't want everyone sitting there and going, well, actually,
(02:00):
interest rates are now coming down, what do we plan around.
They wanted to push back a little bit against that.
They're saying there is a need to get back to
a more normal level of interest rates eventually. Now is
the right time to do a little bit of that task.
Speaker 2 (02:13):
And well, I'm glad I locked in when they he's
back just a little bit now. But Brad, it's kind
of an interesting one, isn't it, Because we know where
that inflation came from, and it was from the situation
in Iran. So that is not really infreation that is
built into our economy. It's an event that we've had
to deal with. So going forward, as you see what
(02:37):
I'm kind of saying here that that's not really a
intrinsic situation within our economy.
Speaker 3 (02:43):
Definitely. I mean, the Reserve Beak Themselve has noted that
back in May when they had to put a forecast
together sort of in the midst of everything, they were
expecting that inflation for the quarter just ended, the Duran
quarter might have been something like four point three percent.
And then again, you know, we're in a position today
where there's a ceasefire that's an effect, and you've had
(03:04):
ships that have been moving through the Middle East and
they've been taking oil. So the Reserve Bank now thinks,
given that fuel prices have already started to ease back
and will continue to do so, that that headline inflation
might only peak at three point nine percent and the
quarter just ended, and it could be back to say
three point three percent in the quarter that we're currently in.
So you're right about that expectation that, look, this one
(03:26):
off event has sort of not quite been and gone,
but we have moved forward quite a lot. Here's the
worry though, and I know this might seem a little
bit backwards, but if the economy then starts to get
rocketing a bit more, if that recovery we were seeing
at the start of this year and we were seeing it,
if that sort of comes back with a bit of force,
the Reserve Bank's then got to be worried that. Not
(03:48):
right now, but in a year year and a half's time,
you've already got slightly too hot inflation. Do businesses go well? Actually, geez,
now that I'm sort of caught between a rock and
a hard place. With a better recovery, now I can
try and make some margin up. Now I can pass
through some bigger art cost increases. So I know that
sort of a little bit backwards. But the bank is
effectively trying to look less. It's sort of the next
(04:09):
month or two more at the next sort of year
or two, and go what's the right balance to try
and get back to?
Speaker 2 (04:15):
Yeah, with that in mind, is there any indication, any
indication at all of what they're going to do going forward? Now?
Speaker 3 (04:23):
Well, they've been again quite cagy, which is probably appropriate,
you know, looking forward, they don't want to give too
much away because as we've seen the last couple of weeks,
things can change quite quickly. What they did highlight was
that the committee agreed that they think, yes, there are
probably further OCR increases coming. The timing though, is uncertain,
(04:44):
so I don't think and they've said that very specifically
literal statement from the Bank in their record of meeting
they're timing those OCR changes is highly uncertain, and that
those decisions are going to depend on how the committee
thinks businesses are considering their price setting behavior. So RKWI
business is starting to talk a lot more about trying
to raise prices and make up for lost time. Are
(05:06):
they worried about the economy and not passing on price
and increases? Are they what are we seeing in terms
of capacity in the economy. Do you see that a
number of sectors, like the primary sector at the moment,
are in a good spot. Does that broaden out to
other industries or do you see that you know a
lot of different pressures continue to hit. So the Bank's
(05:26):
sort of being pretty open that, yep, there probably are
some more to come, but they're very very cautious around
the timing of that, and I think that probably suggests
in our mind there's probably another one at least in
twenty twenty six. Maybe not quite as strong of a
view that there should be two more getting us back
to three percent by the end of the year. But
clearly there's a focus from the Reserve Bank not to
(05:47):
try and hurt the economy, just trying to move us
from easy interest rates where we are at the moment
back towards more neutral interest rates with an OCR around
three percent.
Speaker 2 (05:57):
So, finally, Brad, in your opinion, is this the correct
decision that they've made.
Speaker 3 (06:03):
I think it broadly is the right decision. I mean,
it's what we were expecting, which is always good when
you sort of get the pick right. But I think
as well, the big I guess benefit here is that
it sends a bit of a signal everyone's clear, a
bit more on the direction, maybe not so much on
the timing, But it probably also doesn't change a lot
for the everyday key we out there. You know, yes,
(06:24):
we're expecting that retail banks will probably adjust their short
term rates. You know, people on a floating mortgage rate,
for example, they'll probably see an announcement in the next
day or two you'd expect from the banks. But given
that there have already been a couple of banks that
have cut their long term rates again those two to
five years in recent weeks, is probably not a huge
huge amount to do for those longer dated interest rates
(06:47):
right here and now. So a little bit of a
sort of catch up almost from the Reserve Bank getting
to everyone else had already moved to. And so hopefully
that gives everyone a bit more breathing room as we
sort of assess what is still a pretty weird and
wonderful economy out there at the minute.
Speaker 2 (07:02):
It certainly is thank you so much for your time, Brad,
appreciate it. That's Brad Olsen COEO and principal economists for Infometrics.
So if you didn't hear, the Reserve Banks Monatary Policy
Committee has hiked the official god ess not saying hike,
they haven't hiked it, sorry. The Reserve Banks Monetary Policy
Commission has raised the official cash rate for the first
time in more than three years. It has raised the
(07:23):
OCA twenty five basis points to two point five percent.
And economists were divided and where they were going to
do that.
Speaker 1 (07:30):
For more from News Talks B listen live on air
or online, and keep our shows with you wherever you
go with our podcasts on iHeartRadio
You're listening to a podcast from News Talk zed B.
Follow this and our wide range of podcasts now on iHeartRadio.
Speaker 2 (00:16):
The Reserve Bank's Monetary Policy Committee is hiked the official
cash rate for the first time in more than three years.
It's raised the OCA twenty five basis points to two
point five percent. So I'll take back that hiked. They
didn't hike it, they raised it. Hiked would suggest that
they'd gone up an unprecedented amount. They've raised it twenty
five basis points to two point five percent. Economists have
(00:39):
been divided on whether the committee would hold the cash
rate or raised it, and we're joined now by Brad Olson,
CEO and principal economist at Inflametrics. Brad, they raised it
two point five y.
Speaker 3 (00:55):
Well effectively, they think now is the time to start
to get things moving up. They're worried about the potential
that over the long term they need to get interest
rates back to a bit more of a I guess
comfortable position where they're not adding anything into the economy,
they're not taking anything away. Of course, last time they
met back in May, they said quite clearly there was
(01:17):
a split vote, but there was sort of questions around
where they need to go. Yes, you've now had the
sort of immediate inflationary spike from the Middle East conflict
has gone. The worry though, is that sort of those
more medium term economic shocks might come through the biggest
one though, And I think one of the reasons that
they probably opted to pull the trigger today rather than
(01:37):
anything else is that in recent weeks you have actually
seen longer dated interest rates, so you look at the
likes of, you know, your two to five year mortgage rates,
they've actually pulled back. And the Reserve Bank did say
quite specifically that the increasing the ocr at this meeting
is intended in part to avoid a further easing in
financial conditions. So they don't want everyone sitting there and going, well, actually,
(02:00):
interest rates are now coming down, what do we plan around.
They wanted to push back a little bit against that.
They're saying there is a need to get back to
a more normal level of interest rates eventually. Now is
the right time to do a little bit of that task.
Speaker 2 (02:13):
And well, I'm glad I locked in when they he's
back just a little bit now. But Brad, it's kind
of an interesting one, isn't it, Because we know where
that inflation came from, and it was from the situation
in Iran. So that is not really infreation that is
built into our economy. It's an event that we've had
to deal with. So going forward, as you see what
(02:37):
I'm kind of saying here that that's not really a
intrinsic situation within our economy.
Speaker 3 (02:43):
Definitely. I mean, the Reserve Beak Themselve has noted that
back in May when they had to put a forecast
together sort of in the midst of everything, they were
expecting that inflation for the quarter just ended, the Duran
quarter might have been something like four point three percent.
And then again, you know, we're in a position today
where there's a ceasefire that's an effect, and you've had
(03:04):
ships that have been moving through the Middle East and
they've been taking oil. So the Reserve Bank now thinks,
given that fuel prices have already started to ease back
and will continue to do so, that that headline inflation
might only peak at three point nine percent and the
quarter just ended, and it could be back to say
three point three percent in the quarter that we're currently in.
So you're right about that expectation that, look, this one
(03:26):
off event has sort of not quite been and gone,
but we have moved forward quite a lot. Here's the
worry though, and I know this might seem a little
bit backwards, but if the economy then starts to get
rocketing a bit more, if that recovery we were seeing
at the start of this year and we were seeing it,
if that sort of comes back with a bit of force,
the Reserve Bank's then got to be worried that. Not
(03:48):
right now, but in a year year and a half's time,
you've already got slightly too hot inflation. Do businesses go well? Actually, geez,
now that I'm sort of caught between a rock and
a hard place. With a better recovery, now I can
try and make some margin up. Now I can pass
through some bigger art cost increases. So I know that
sort of a little bit backwards. But the bank is
effectively trying to look less. It's sort of the next
(04:09):
month or two more at the next sort of year
or two, and go what's the right balance to try
and get back to?
Speaker 2 (04:15):
Yeah, with that in mind, is there any indication, any
indication at all of what they're going to do going forward? Now?
Speaker 3 (04:23):
Well, they've been again quite cagy, which is probably appropriate,
you know, looking forward, they don't want to give too
much away because as we've seen the last couple of weeks,
things can change quite quickly. What they did highlight was
that the committee agreed that they think, yes, there are
probably further OCR increases coming. The timing though, is uncertain,
(04:44):
so I don't think and they've said that very specifically
literal statement from the Bank in their record of meeting
they're timing those OCR changes is highly uncertain, and that
those decisions are going to depend on how the committee
thinks businesses are considering their price setting behavior. So RKWI
business is starting to talk a lot more about trying
to raise prices and make up for lost time. Are
(05:06):
they worried about the economy and not passing on price
and increases? Are they what are we seeing in terms
of capacity in the economy. Do you see that a
number of sectors, like the primary sector at the moment,
are in a good spot. Does that broaden out to
other industries or do you see that you know a
lot of different pressures continue to hit. So the Bank's
(05:26):
sort of being pretty open that, yep, there probably are
some more to come, but they're very very cautious around
the timing of that, and I think that probably suggests
in our mind there's probably another one at least in
twenty twenty six. Maybe not quite as strong of a
view that there should be two more getting us back
to three percent by the end of the year. But
clearly there's a focus from the Reserve Bank not to
(05:47):
try and hurt the economy, just trying to move us
from easy interest rates where we are at the moment
back towards more neutral interest rates with an OCR around
three percent.
Speaker 2 (05:57):
So, finally, Brad, in your opinion, is this the correct
decision that they've made.
Speaker 3 (06:03):
I think it broadly is the right decision. I mean,
it's what we were expecting, which is always good when
you sort of get the pick right. But I think
as well, the big I guess benefit here is that
it sends a bit of a signal everyone's clear, a
bit more on the direction, maybe not so much on
the timing, But it probably also doesn't change a lot
for the everyday key we out there. You know, yes,
(06:24):
we're expecting that retail banks will probably adjust their short
term rates. You know, people on a floating mortgage rate,
for example, they'll probably see an announcement in the next
day or two you'd expect from the banks. But given
that there have already been a couple of banks that
have cut their long term rates again those two to
five years in recent weeks, is probably not a huge
huge amount to do for those longer dated interest rates
(06:47):
right here and now. So a little bit of a
sort of catch up almost from the Reserve Bank getting
to everyone else had already moved to. And so hopefully
that gives everyone a bit more breathing room as we
sort of assess what is still a pretty weird and
wonderful economy out there at the minute.
Speaker 2 (07:02):
It certainly is thank you so much for your time, Brad,
appreciate it. That's Brad Olsen COEO and principal economists for Infometrics.
So if you didn't hear, the Reserve Banks Monatary Policy
Committee has hiked the official god ess not saying hike,
they haven't hiked it, sorry. The Reserve Banks Monetary Policy
Commission has raised the official cash rate for the first
time in more than three years. It has raised the
(07:23):
OCA twenty five basis points to two point five percent.
And economists were divided and where they were going to
do that.
Speaker 1 (07:30):
For more from News Talks B listen live on air
or online, and keep our shows with you wherever you
go with our podcasts on iHeartRadio
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Betrayal Weekly
Betrayal Weekly is back for a new season. Every Thursday, Betrayal Weekly shares first-hand accounts of broken trust, shocking deceptions, and the trail of destruction they leave behind. Hosted by Andrea Gunning, this weekly ongoing series digs into real-life stories of betrayal and the aftermath. From stories of double lives to dark discoveries, these are cautionary tales and accounts of resilience against all odds. From the producers of the critically acclaimed Betrayal series, Betrayal Weekly drops new episodes every Thursday. If you would like to share your story, you can reach out to the Betrayal Team by emailing them at betrayalpod@gmail.com and follow us on Instagram at @betrayalpod and @glasspodcasts. Please join our Substack for additional exclusive content, curated book recommendations, and community discussions. Sign up FREE by clicking this link Beyond Betrayal Substack. Join our community dedicated to truth, resilience, and healing. Your voice matters! Be a part of our Betrayal journey on Substack.