The Country 09/07/26: Ben Picton talks to Hamish McKay

Rabobank’s Sydney-based senior strategist, global economics and markets, on the Reserve Bank’s OCR hike and its implications for inflation, interest rates and economic growth. Picton also discusses renewed Middle East tensions, rising oil prices and the outlook for further rate increases.

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Episode Transcript

Speaker 1 (00:00):
Right crossing that it's now to Sydney to senior macro
strategist for Rabo Research being picked and joined us.

Speaker 2 (00:06):
Now, well it's morning over there being.

Speaker 3 (00:08):
Good morning, good morning Hamish.

Speaker 1 (00:11):
Yeah, ocr here up zero point two five basis points.

Speaker 2 (00:15):
Any surprise in this move.

Speaker 3 (00:18):
Well, some might have been a little bit surprised.

Speaker 1 (00:20):
It was.

Speaker 3 (00:21):
It was a little bit of a I guess, a
split between the views of various market economists whether they
would hike or not. We were going for a hike.
That's been our view for a couple of months now.
The futures market was implying around about an eighty percent
chance of the hike, but that had increased since earlier
in the week. When I looked at it on Monday morning,

(00:41):
it was only about seventy percent. So it wasn't really
a faded compley by Eddie stretch, but it was probably
the expected outcome.

Speaker 2 (00:52):
Okay, what do you think the purpose is? The thinking
behind it?

Speaker 1 (00:56):
After what it's been a long time coming, A long
time between drinks.

Speaker 3 (01:00):
Yeah, Well, basically they're justifying it by saying that the
economy is in recovery, it's expected to grow more quickly
in the next six months, and that the level.

Speaker 4 (01:11):
Of where the ocr was at two andred quarter percent,
that's a stimulator in level, so effectively, given that inflation
is above the target range and is expected to remain
above the.

Speaker 3 (01:25):
Target range for a little while yet, and keeping in
mind that we've got a new wave of issues coming
out of the Middle East over the last forty eight hours,
they want to remove some of that stimulus so that
as the economy accelerates, they don't run the risk of
entrenching inflation over the longer term.

Speaker 1 (01:45):
Yeah, how much do you think what's happened in the
last sort of I suppose twenty four forty eight hours
has impacted you know, Donald coming out with as cuckoo
claims and et cetera, et cetera.

Speaker 3 (01:57):
Yeah, Well, it's you know, it's always difficult to know
how long these things are going to last, whether the
renewed fighting is just a little bit of a forty
eight hour tips for tat, or whether it's going to
be the start of an extended campaign. Our view, our
baseline view on the Middle East, was that we expected
fighting to resume after the US midterms. We thought that

(02:19):
there were basically irreconcilable differences around Iran's nuclear program, around
the status of HESBLA in Lebanon, and also over the
whether there would be tolls or not in the straight
of hor news. So we thought that the peace deal
was reasonably shaky, but this certainly accelerated the timeline on things,

(02:43):
and that does pose renewed risks to inflation. Were already
seeing higher oil prices and higher diesel prices this morning.

Speaker 1 (02:51):
Ye effect on mortgage great timeline as what I wouldn't well,
has it a geese but zero point two five basis points?
Shouldn't sort of see this in the panic zone.

Speaker 3 (03:03):
No, I don't think so, and largely because mortgage rates
tend to be based on wholesale money market rates, and
those wholesale market rates had moved a long time ago.
So this, this expected increase to the o CR was
was already largely priced into the market, and further increases

(03:24):
to the o CR are already largely priced into the market,
to the extent that the RBN there. They actually said
yesterday that one of the reasons why they hiked was
to avoid loosening monetary conditions, because if they if they
didn't deliver on the hike, then then wholesale money market

(03:45):
rates would have adjusted lower, and it would have effectively
provided extra stimulus, so they were effectively meeting the market
in the moves that they made yesterday.

Speaker 1 (03:55):
Okay, in overall growth shouldn't have too much of an impact.

Speaker 2 (04:01):
I mean, it seems like a fary, moderate sort of move.

Speaker 3 (04:05):
Yeah, we don't expect that it will have dramatic impact
on economic growth. As I've sort of said that most
were expecting this move, and if not yesterday, than in
the near future. Most banks and research houses are expecting
further increases to the OCR and the RBNZ certainly sent

(04:25):
that message yesterday. The timing is a little bit uncertain,
but certainly the direction is expected to be up, and
they're characterizing this as a removal of stimulus rather than
a hitting the brakes on the economy. So it's not
really intended to slow growth down. It's just intended to

(04:47):
stop accelerating to quite the same extent impact.

Speaker 2 (04:51):
Thanks very much for joining us.

Speaker 3 (04:53):
Cheers, Hamish