Liam Dann: NZ Herald Business Editor on the Reserve Bank cutting the Official Cash Rate

It's the news many have been hoping for. 

The Reserve Bank has cut the Official Cash Rate 25 basis points, from 5.5% to 5.25%. 

It says business surveys and economic indicators suggest inflation is returning to within the 1-3% target band. 

But the Herald's Liam Dann told Simon Barnett and James Daniels we certainly won't be getting a return to the record-low cash rate we had during the pandemic. 

He says the central bank isn't declaring victory on inflation and will need to keep the cash rate relatively high for some time. 

LISTEN ABOVE 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:06):
You're listening to the Simon Barnett and James Daniels Afternoons
podcast from News Talk ZEDB.

Speaker 2 (00:12):
Preserve Bank has dropped the official cash right twenty five
basis points to talk about. This is New Zealand Herald's
Business editor at Large, Liam Dan. Hello, Liam, Hey guys,
I'm back. Yeah, you're back, and you and I and
I think JD as well. We were picking that it
would remain the status quo, but it wasn't. It dropped.
So what are your first thoughts?

Speaker 3 (00:31):
Well, it's exciting. It's the first cut since March twenty twenty,
so it's, you know, it's just something we haven't seen
for a while. It's you know, it is it's a cut,
and that means that they think that inflation's coming back
under control, which is great. But there's a warning there.
I mean, they it's not quite a sort of a
declaring victory on inflation. They've warned that they they'll need

(00:53):
to keep rates reasonably elevated for some time. They've sort
of priced in in their forward forecast one more cut
this year. I think markets will already be excited and
be thinking we'll get one or not over in November
and we may do, but they just have got that
little bit of warning there they I guess if inflation,
if the data comes through and it looks sticky from here,

(01:15):
and if it looks like the price of foods bouncing
back up or something like that, they could just leave
them on hold and it would still be reasonably elevated
at five point twenty five. So some relief there for
mortgage holders and for those struggling businesses. But you know,
just just a little warning.

Speaker 2 (01:30):
I guess when you say relief for mortgage holders, so
quart of percent, you know, that's the the I guess
that's the wholesale rate with the retail banks. Asbn QI
bank have dropped their rates, do you know by how much?
And what is likely to happen? Now? How quickly will
the others follow?

Speaker 3 (01:47):
Yeah, I'm just trying to read it press release and
tell you how much they've dropped them by that they're
lowing their variable home rate by twenty five basis points
at asb okay, and I'm not sure about all the
different fixed terms just yet, but they're you know, they're
coming down and in the way the retail banks are
moving ahead of it. There's expectations and the markets will
move head so we'd already seen some mortgage rates come

(02:08):
off a little bit. I guess, you know, it's not
immediate relief for a lot of people because they'll be
fixed at certain rates, but it provides a bit of
a light at the end of the tunnel. The other
thing I think that's probably quite ominous in it all
is that there is the Reserve Bank has also had
to admit that the economy is looking really tough. We
knew that, you know, anyone out there doing business knew that.

(02:31):
But they say, as well as the inflation tracking down,
which that expected, the economy has materially weakened, and we're
just looking at some of the numbers and it looks
like they're saying that we could well be in another recession.
So it probably never felt like we got out of
recession to a lot of people, but there was a
slight bounce for one quarter, and yep, we might be

(02:52):
back in recession according to those numbers.

Speaker 4 (02:55):
So with the ocr going down by zero point two
five percent, we know that it has an effect or
an impact on more excuse me, mortgages, but will have
any impact on the supermarket when we go to the supermarket.

Speaker 3 (03:11):
Well not not not especially, I mean it's really it's
it should should. You know, the fact that we're getting
a rate cut is a kind of a sign that
they feel that inflation is coming under control. So that
would mean that you'd expect that those big price bikes
we've seen in the last couple of years should be
behind us. But we're still we're still vulnerable to you know,

(03:34):
international shocks and things like that. So they they have
some control over the stuff that's happening inside the New
Zealand economy. You know, it puts pressure on them businesses,
puts pressure on the job market. Unemployment goes up, you're
less likely to get a pay rise, all all that
great stuff. And then it also means that businesses are
less likely to pass on price increases. So that's all

(03:57):
your domestic inflation, what the experts will call the non
tradable stuff that's been quite elevated. That that comes down,
and they can see that coming down. They have some
control over it. What we don't have control over is
oil and imported food, which is you know, global shipping
supply chains, all that sort of stuff. So there's always
a risk that if that bounces up, you know, at

(04:17):
the wrong time, it could put pressure back on pricing
and then therefore back on the reserve bank.

Speaker 2 (04:24):
Very good, hey, and just before you shoot liem, we
really appreciate your time. But of course when mortgage rates
interest rates are high, it's stink if you've got a
big mortgage, But if you've got some money in the bank,
if you've got a term deposit, it's it's often good.
So given the OCRs drop by a court of percent,
how will that affect term deposits.

Speaker 3 (04:40):
Yeah, well they'll they'll they'll come off too. I mean
the banks make money on the margin between the term
deposit and what they lend and borrow what they lend,
and you know, effectively borrow at what it does do.
Then that's why you hear people talking about the stock
market going up when interest rates come down. You know,
it's a big battle in the States over the US
Federal Reserve and Wall Street. And as it gets less

(05:03):
lucrative to put your money in the bank account, the
stock market starts to look a bit better. So that's
why I think this will probably be get a strong
reaction on the local New Zealand market, which has been
in the doldrums for a long time.

Speaker 2 (05:16):
Okay, Liam, thank you very much for your time, mate,
good stuff. Cheers, guys, A nice chat with you, Liam Dan,
New Zealand Herald's Business editor at large.

Speaker 1 (05:24):
For more from Simon Barnett and James Daniels afternoons, listen
live to News Talk SETB, or follow the podcast on
iHeartRadio