The Country 15/08/24: Ben Picton talks to Jamie Mackay

Rabobank’s senior economist expresses some surprise with yesterday’s OCR announcement where the Reserve Bank cut the official cash rate by 25 basis points to 5.25%. It is the first cut since March 2020.

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Episode Transcript

Speaker 1 (00:00):
Yesterday's story, the drop in the OCR is today's big
story as well. We're going to get some commentary on
it now from an expert in the field. His name
is Ben Picton. He's basically the senior economist at Rabobank,
been a very wise and insightful man who I've got
a lot of time for. Wrote on Twitter these days

(00:20):
x last night, the Reserve Bank governor is an idiot.
From talking about an OCR rise in May to saying
there will be no relief until August twenty twenty five
to cutting rates in August twenty twenty four, Adrian Orr
has led the economy on a Mary dance. He's got
to go, what do you reckon about that?

Speaker 2 (00:41):
Oh jeez, Jamie, I'm not sure I want to touch
that one. That's a pretty inflammatory tweet. I'm not sure
who put that one out, but it is a big backslip.
I think it's fair to say a pretty big move
from what they were telling us in May to what
they're saying now. I think to be fair that a
lot of people in the markets were shocked with what
they said back in May because it just didn't line

(01:04):
up with what we were seeing in the economy. There
was clear signs of spare capacity, clear signs of hurt.
And I think everyone's breathing asigh of release that the
rate cutters come. Now.

Speaker 1 (01:14):
You've kind of checked out on me at Rabobank, Ben
because you guys to your credit, stuck to your guns.
You were calling August twenty twenty four all along, and
then you checked out at the last moment and moved
it forward or backward to October of this year. You
weren't a mile away. But do you wish you'd stuck
to your guns?

Speaker 2 (01:34):
Yes, I do in hindsight. I did lose my nerve
a little bit because we got a little bit spooked
by the Q two inflation report, and I thought that
because non tradable inflation came in a little bit higher
than what the market was looking for, I thought they
might just hold off for one more meeting. But you're right,
we did have an August cut in there a long
long time ago. We put out that forecast all the

(01:55):
way back in November last year, and we were kind
of Robinson CRUs at the time. Everyone else was saying
twenty twenty five at the earliest. But yeah, I should
have stuck to my guns on that.

Speaker 1 (02:05):
One well, Adrian or you know, like Sunneny. A matter
of a few months ago, he was saying no cuts
until August twenty twenty five. And that is my beef
with the bloke. He's put a lot of people down
the wrong path. And also, I think when it comes
to our economy, and I've been banging on about this,
and I apologize for banging on about it again, the
cure was worse than the disease. He screwed the economy

(02:26):
down too hard, and I don't think parts of our
economy are going to recover, certainly in the short term
from this.

Speaker 2 (02:33):
Well, I think it's interesting that in the monetary policy
statement that we got yesterday, there's some big downward revisions
in the ocr track, and that's because they're expecting that
the economy is going to be in a larger degree
of spare capacity than what they previously estimated, i e.
The economy has been quavered harder than they previously expected,

(02:56):
so they're going to have to drop the rate a
little bit faster than what many were expecting, including probably
faster than what we were expecting, in order to boil
the joint out. So yeah, I think that more rate
cuts are definitely on the way, and they're becoming thick
and fast by this sounds well.

Speaker 1 (03:14):
That is the good news. And we've got two more
announcements before the end of the year, early October and
late November. Are we going to see twenty five basis
points in your opinion at both of those announcements.

Speaker 2 (03:26):
Yeah. So previously we had expected two cuts this year,
so we had as we mentioned, we shifted back the
first one from August to October, and then we had
another one penciled into November. I think there's a very
real chance now that they cut it all three meetings.
We haven't officially updated our forecast yet. We'll probably finalize

(03:48):
that by the end of the week. But yeah, I
think it's a really strong chance now that they cut
it every remaining meeting this year.

Speaker 1 (03:55):
Now I see one of the bank economists or chief executives,
it might have been the bloke from Kiwi Bank saying
there now picking twelve consecutive twenty five point drops and
these are going to continue on to twenty twenty seven.
That's good news. Where does this soci potentially bottom out
or are we just stabbing in the dark there?

Speaker 2 (04:15):
Yeah, Well, that's a million dollar question, And I do
think it is a bit of a stab in the dark,
because you can get mugged by economic reality on the
way to these forecasts. The further out you go, the
more uncertain things become. You have things like wars and
pandemics and elections and all sorts of things that pop
up in the meantime. But the arbyens that they think

(04:39):
that the neutral rate of interest is somewhere around about
three percent, So that's the level at which it neither
adds to or subtracts from inflation. We suspect that it
might actually be a little bit higher than that because
we're seeing some structural changes in the world economy. So
I'd be surprised if we did get as low as

(05:01):
that in sort of rapid time. But you know, there's
so many variables here, like it depends on what happens
with the international economy, depends on how quickly the unemployment
rate drops off in New Zealand. So it is on
the table, and it's really in the RB and D
expectations now as well.

Speaker 1 (05:19):
Hey, yeah, people haven't picked it up here a Nusia. Look,
I can't I can't leave you without making comment about
ray Gun your breakdancer. How good is this? This is
the gift that keeps on giving, especially for us being
on this at the Testament. Have you seen the meme
about the Quantus tail fin.

Speaker 2 (05:36):
I have seen that one. Yeah, that was a beauty.

Speaker 1 (05:39):
What do you say in your defense?

Speaker 2 (05:42):
Oh? Well, I say that you guys are just jealous.
I think Jamie, she's become a cultural phenomenon. She's clearly
one of the greatest break dancers on Earth. And yeah,
and I think it's just sower graates from everyone else
who doesn't have a breakdancer talented it out.

Speaker 1 (05:56):
I love Kath and Kombe one of my favorite TV comedies.
And I love the comparisons between Reagun your breakdowncer and
Kath and Kim or Kath and Kel absolutely priceless. I'm
glad you Assis are very good at laughing at yourselves.
Do appreciate your time today on the country being picked in.

Speaker 2 (06:13):
Thanks Jamie. Always a pleasure.