April 21, 2025 • 8 mins
The managing director of Bagrie Economics talks about the impact of the rise in the Kiwi dollar, the importance of central bank independence, and commodity prices holding up in New Zealand. Plus, we preview next month’s MPS and OCR announcement.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
General Bagray is the managing director of Bagy Economics. He
joins me, now, good afternoon, after know now you last
chattered to Jamie just on the eve of Liberation Day.
Speaker 2 (00:11):
Been a bit of a roller coaster since then.
Speaker 3 (00:13):
Came Welle, a roller coaster mostly with a pretty big
downhill stretch within it. If you look at equity markets
have gone south, bond markets, your interest rates have gone north.
US dollar has gone south. And of course when the
US dollar goes south, that means the New Zealand dollar
US dollar goes north. So we're gone from about sort
(00:35):
of fifty six and a half cent to sixty cents
for knocking on the door of today. So unfortunately, and
that's about a seven to eight percent potential hit to
farmer's income. When you take that New Zealand dollar into effect,
are assuming that commodity prices are unchanged.
Speaker 2 (00:53):
Massive change from twelve months ago.
Speaker 3 (00:57):
Hi, well, not really compar had the twelve months ago.
And so if you look, if you step back and
look at where we were twelve months ago, the New
Zealand dollar was sitting around sixty to sixty five cents
was the range for the past sort of six months.
I guess the range has been fifty five to sixty cents,
so it's slotted sort of ten percent south. Now it
(01:19):
looks like that new range might be sixty to sixty
five because your President Trump is not doing the US
dollar any favors Towers is going to be bad for growth.
And what he's also out at the moment, he's attacking
the head of the US better reserve power. In fact,
he's basically telling the guy to step aside. If there's
(01:39):
one thing that lies at the crux of any economy,
it's the independence of a central bank. And what we're
seeing at the moment is that a fair bit of
political interference and to what the FED could or should
be doing. Because you have the president of the United States,
things interest rates should be coming down. But if you
look at tariff teris are bad for growth, but they're
(02:00):
bad for inflation. I inflation goes north, Yes, so power.
I think he's going to do his toos in here
and do his job because he needs to get inflation
under control. And it's hard to get inflation under control
when you've got a big power of bow wave that's
coming your way.
Speaker 2 (02:15):
Also, maybe hard to get inflation under control when you've
got someone as unpredictable as Trump, how will he have
any saying whether this guy continues or does he have
about the power to remove him if he doesn't like
what he's seen.
Speaker 3 (02:30):
Well, you've got to have what's called courts, And there's
a bit of debate going around at the moment in
regard to what is what is justifiable courts. Doing your
job by getting on top of inflation is not courts.
So what we're seeing at the moment is that markets
(02:50):
are really concerned about what's going on here in regard
to the political interference with a pretty well functioning system,
but the broader shoot that's going on here on multiple levels.
We've been used an economic environment for a long time.
We caught it the Great Moderation. There wasn't too much
economic volatility, and we had good times with low inflation
(03:14):
for about thirty years. Now what's called geostrategic or geopolitical imperatives.
Priorities are now being overlaid on commercial imperatives. So we've
been used to the commercial imperative where it was just
about just in time. It was all about globalization, it
was all about outsourcing, it was all about the laws
(03:35):
of economics. Now we're starting to see those laws are
being thrown out the door, and you're seeing political overlay,
You've seeing geo strategic overlay, and that's a world that's
more akin to the firsties and sixties and the nineteen
seventies than the nineteen nineties. In the two thousand ear
we've been used to.
Speaker 1 (03:53):
Do you think we're going to say anything start to
calm down? Do you think Trump's had as we power
play who started to get as his tariffs in place?
Will he maybe calm down and feel like, right, I've
tacked that box, I've done what I said I would.
Speaker 2 (04:07):
Let's just let things settle.
Speaker 3 (04:09):
Well. We hope that happens, and ultimately markets, I think
will muscle up and potentially force a bit of a
backdown at We saw a bit of a back down
about ten days ago when US ten year bond got
up to four point five percent, which was a little
(04:31):
bit like when we saw with loz Trust, when the
UK came into the Prime Minister and had the sitty
of fairy dust economics with his short thoughts, you can
cut taxes and do a whole lot of magical sort
of things and there be no economic consequences in line
and behold UK gilts rose and the pound got smashed
and well, lose trust was out the door pretty quickly. Yeah,
So ultimately markets are going to have a bit of
(04:52):
a say here in regard to how bay you can
go as a president in regard to your economic policy.
But the general consensus out there, in fact, it's basic economics.
You implement trade bearers, invent tariffs, it's bad for growth
and it's bad for inflation. The problem is at the
moment is that it's not just about economics. Yeah, this
is about geo strategic, geo political issues and that's once
(05:15):
again that's an environment we haven't seen for fifty odd years.
Speaker 1 (05:18):
And I know Liz Trunks wasn't the greatest for the UK,
but my gosh, we love her for our free trade agreement.
We'll absolutely take that one. Hey, look closer to home, cam,
how are our commodity prices?
Speaker 2 (05:30):
They seem to be holding.
Speaker 3 (05:31):
Up Okay, Yeah, remarkably so. When you look your oil
that's gone from sort of seventy bucks a barrel down
to the sixty sixty five cent range. The likes of copper,
some of those other sort of bell weathers that are
linked into the global growth cycle have taken a big
hit because everybody's jumped to the same conclusion. You're bringing
(05:52):
Paris that's going to be bad for global growth, bad
for global growth, less demand, then you see commodity prices
come under a bit of pressure. We've seen so commodities
in New Zeon that saw a bit of an immediate reaction,
but by and large, and if you look at you
have all those deiry auction the numbers held up remarkably
well given what we're seeing around the globe, and the
hope is that that continues. But the fall variable here
(06:15):
or the womb has disappeared. The old sort of the
economic crutch that we had that was really nice to have,
that was putting a bit more economic muscle into the
finances of the farming sector, was that, Yeah, fifty five
to sixty cent New Zealand dollar. It now looks like
sixty to sixty five might be the new range, given
that the US dollar has just been rerated around the globe.
Speaker 1 (06:35):
We've got an MPs and OCR announcement the end of
next month, so just over a month to go. Any
idea of what we might expect in that one or
is there a lot of water under the bridge between
now and then.
Speaker 3 (06:48):
I think there's a fear bit of water to go
under the bridge between now and then. But the general
consensus is that the OCI continues to go lower. Inflation
in New Zeon looks by and large like it's under control.
My personal view is that there's still a little bit
of latent inflation pressure there coming from what's called nine
economically sensitive parts of the economy. But you know, the
(07:12):
story with the OCR looks to be, let's get it
back to around sort of three percent. When you get
a three percent OCR, you're going to get your fact
mortgage rates are going to be slightly south of five percent,
which is what we're starting to see already in anticipation
of that OCA in down to three percent. I see
angeyds come out and they think the OCR might now
go to two point five percent, or that might be
(07:35):
a good scenario, a good outcome. It's because of bad possibilities.
The bad possibilities or the bad outcomes is that we
can global growth. It transmits through to the New Zealand economy.
Week in New Zealand economy, then you need a lower
OCR to two point five percent. So look We all
like lower interest rates, but sometimes we need to step
back and take a deep breath and regard the way
interest rates might get down to that to a level
(07:56):
and not because of good economic outcomes.
Speaker 1 (07:58):
Yeah, there's always that scientist consider Cameron Bankree, Managing director
for Bank gree Economics. Appreciate your time on the country
as always great to chat all the best
General Bagray is the managing director of Bagy Economics. He
joins me, now, good afternoon, after know now you last
chattered to Jamie just on the eve of Liberation Day.
Speaker 2 (00:11):
Been a bit of a roller coaster since then.
Speaker 3 (00:13):
Came Welle, a roller coaster mostly with a pretty big
downhill stretch within it. If you look at equity markets
have gone south, bond markets, your interest rates have gone north.
US dollar has gone south. And of course when the
US dollar goes south, that means the New Zealand dollar
US dollar goes north. So we're gone from about sort
(00:35):
of fifty six and a half cent to sixty cents
for knocking on the door of today. So unfortunately, and
that's about a seven to eight percent potential hit to
farmer's income. When you take that New Zealand dollar into effect,
are assuming that commodity prices are unchanged.
Speaker 2 (00:53):
Massive change from twelve months ago.
Speaker 3 (00:57):
Hi, well, not really compar had the twelve months ago.
And so if you look, if you step back and
look at where we were twelve months ago, the New
Zealand dollar was sitting around sixty to sixty five cents
was the range for the past sort of six months.
I guess the range has been fifty five to sixty cents,
so it's slotted sort of ten percent south. Now it
(01:19):
looks like that new range might be sixty to sixty
five because your President Trump is not doing the US
dollar any favors Towers is going to be bad for growth.
And what he's also out at the moment, he's attacking
the head of the US better reserve power. In fact,
he's basically telling the guy to step aside. If there's
(01:39):
one thing that lies at the crux of any economy,
it's the independence of a central bank. And what we're
seeing at the moment is that a fair bit of
political interference and to what the FED could or should
be doing. Because you have the president of the United States,
things interest rates should be coming down. But if you
look at tariff teris are bad for growth, but they're
(02:00):
bad for inflation. I inflation goes north, Yes, so power.
I think he's going to do his toos in here
and do his job because he needs to get inflation
under control. And it's hard to get inflation under control
when you've got a big power of bow wave that's
coming your way.
Speaker 2 (02:15):
Also, maybe hard to get inflation under control when you've
got someone as unpredictable as Trump, how will he have
any saying whether this guy continues or does he have
about the power to remove him if he doesn't like
what he's seen.
Speaker 3 (02:30):
Well, you've got to have what's called courts, And there's
a bit of debate going around at the moment in
regard to what is what is justifiable courts. Doing your
job by getting on top of inflation is not courts.
So what we're seeing at the moment is that markets
(02:50):
are really concerned about what's going on here in regard
to the political interference with a pretty well functioning system,
but the broader shoot that's going on here on multiple levels.
We've been used an economic environment for a long time.
We caught it the Great Moderation. There wasn't too much
economic volatility, and we had good times with low inflation
(03:14):
for about thirty years. Now what's called geostrategic or geopolitical imperatives.
Priorities are now being overlaid on commercial imperatives. So we've
been used to the commercial imperative where it was just
about just in time. It was all about globalization, it
was all about outsourcing, it was all about the laws
(03:35):
of economics. Now we're starting to see those laws are
being thrown out the door, and you're seeing political overlay,
You've seeing geo strategic overlay, and that's a world that's
more akin to the firsties and sixties and the nineteen
seventies than the nineteen nineties. In the two thousand ear
we've been used to.
Speaker 1 (03:53):
Do you think we're going to say anything start to
calm down? Do you think Trump's had as we power
play who started to get as his tariffs in place?
Will he maybe calm down and feel like, right, I've
tacked that box, I've done what I said I would.
Speaker 2 (04:07):
Let's just let things settle.
Speaker 3 (04:09):
Well. We hope that happens, and ultimately markets, I think
will muscle up and potentially force a bit of a
backdown at We saw a bit of a back down
about ten days ago when US ten year bond got
up to four point five percent, which was a little
(04:31):
bit like when we saw with loz Trust, when the
UK came into the Prime Minister and had the sitty
of fairy dust economics with his short thoughts, you can
cut taxes and do a whole lot of magical sort
of things and there be no economic consequences in line
and behold UK gilts rose and the pound got smashed
and well, lose trust was out the door pretty quickly. Yeah,
So ultimately markets are going to have a bit of
(04:52):
a say here in regard to how bay you can
go as a president in regard to your economic policy.
But the general consensus out there, in fact, it's basic economics.
You implement trade bearers, invent tariffs, it's bad for growth
and it's bad for inflation. The problem is at the
moment is that it's not just about economics. Yeah, this
is about geo strategic, geo political issues and that's once
(05:15):
again that's an environment we haven't seen for fifty odd years.
Speaker 1 (05:18):
And I know Liz Trunks wasn't the greatest for the UK,
but my gosh, we love her for our free trade agreement.
We'll absolutely take that one. Hey, look closer to home, cam,
how are our commodity prices?
Speaker 2 (05:30):
They seem to be holding.
Speaker 3 (05:31):
Up Okay, Yeah, remarkably so. When you look your oil
that's gone from sort of seventy bucks a barrel down
to the sixty sixty five cent range. The likes of copper,
some of those other sort of bell weathers that are
linked into the global growth cycle have taken a big
hit because everybody's jumped to the same conclusion. You're bringing
(05:52):
Paris that's going to be bad for global growth, bad
for global growth, less demand, then you see commodity prices
come under a bit of pressure. We've seen so commodities
in New Zeon that saw a bit of an immediate reaction,
but by and large, and if you look at you
have all those deiry auction the numbers held up remarkably
well given what we're seeing around the globe, and the
hope is that that continues. But the fall variable here
(06:15):
or the womb has disappeared. The old sort of the
economic crutch that we had that was really nice to have,
that was putting a bit more economic muscle into the
finances of the farming sector, was that, Yeah, fifty five
to sixty cent New Zealand dollar. It now looks like
sixty to sixty five might be the new range, given
that the US dollar has just been rerated around the globe.
Speaker 1 (06:35):
We've got an MPs and OCR announcement the end of
next month, so just over a month to go. Any
idea of what we might expect in that one or
is there a lot of water under the bridge between
now and then.
Speaker 3 (06:48):
I think there's a fear bit of water to go
under the bridge between now and then. But the general
consensus is that the OCI continues to go lower. Inflation
in New Zeon looks by and large like it's under control.
My personal view is that there's still a little bit
of latent inflation pressure there coming from what's called nine
economically sensitive parts of the economy. But you know, the
(07:12):
story with the OCR looks to be, let's get it
back to around sort of three percent. When you get
a three percent OCR, you're going to get your fact
mortgage rates are going to be slightly south of five percent,
which is what we're starting to see already in anticipation
of that OCA in down to three percent. I see
angeyds come out and they think the OCR might now
go to two point five percent, or that might be
(07:35):
a good scenario, a good outcome. It's because of bad possibilities.
The bad possibilities or the bad outcomes is that we
can global growth. It transmits through to the New Zealand economy.
Week in New Zealand economy, then you need a lower
OCR to two point five percent. So look We all
like lower interest rates, but sometimes we need to step
back and take a deep breath and regard the way
interest rates might get down to that to a level
(07:56):
and not because of good economic outcomes.
Speaker 1 (07:58):
Yeah, there's always that scientist consider Cameron Bankree, Managing director
for Bank gree Economics. Appreciate your time on the country
as always great to chat all the best
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