The Country 26/11/24: Cameron Bagrie talks to Jamie Mackay

Is an Independent Economist who pays tribute to Nicki Kaye and offers his OCR prediction for tomorrow. Like everyone else he's picking a 50 basis point drop.  

 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Let's kick it off with Cameron Bagri Independent Economists. Cameron,
I know you moved and height were still moving high
circles in Wellington. Obviously you came across Nicky Kay on
numerous occasions.

Speaker 2 (00:13):
Yeah. Look, lovely lady and obviously a very sad day
and condolences to her family. But if I sit back
and think about the bigger picture, Jamie, yeah, we just
need to appreciate our loved ones, because you know, sometimes
life can be pretty short. Yes, look after those that

(00:36):
are close to you.

Speaker 1 (00:37):
Absolutely well, said the OCR announcement tomorrow from the Reserve Bank.
There was quite a bit of conjecture at the one
in October as to what might happen, but it just
this seems to be done and dusted, sealed. We're going
to get fifty basis points tomorrow.

Speaker 2 (00:54):
Yeah. So if you look at the official cash rate,
is still a long way away from what's called neutral,
and neutral is where the reserve banks neither got the
foot on the accelerator or the break. Yeah, they've broken
the back of the economy. They've got headline inflation pretty
close to two percent. Non trade of inflation is tracking down,

(01:16):
core inflation is tracking down. Yeah, you want to get
interest rates a little bit closer to neutral, and when
you're a long way neutral, you can take bigger steps.
So that's one of the bigger reasons why we'll see
a fifty I think, yeah, going into twenty twenty five,
will may be moving in large steps. No, they'll be

(01:38):
moving in sports steps because as you get a little
bit closer to neutral, Okay, you're a little bit in
that zone where you need to be.

Speaker 1 (01:47):
Now, I do want to steal Emma Higgins thunder because
Rubberbanks just come out with an interesting report on what
Trump's second term could mean for the New Zealand economy.
But one other points that she will make, because I've
got the press release in front of me. As Trump
might mean more inflation, it also might mean the Federal

(02:08):
Reserve pausing their interest rate cutting cycle in twenty twenty five,
what do you think.

Speaker 2 (02:14):
Yeah, well, if you have a look at the trajectory
for the American economy, it's been pretty robust over twenty
twenty four. You know, they've managed to get inflation a
bit lower without beating the economy up too much. But
what we're starting to see in America at the moment
is your core inflation indicators have leveled out around three

(02:37):
to three point five percent, and three to three point
five leveling out is not two percent we need to be.
So we've seen interest rate markets in America. It's started
to pair back those expectations as to whether the US
Federal Reserve can continue with their easing cycle. We've seen
the yield on a US ten year by and has

(02:58):
gone from three point eight percent four point four And
I guess the good story out of this for New Zealanders,
particularly the exporters there has been that New Zealand dollar
has popped below sixty cents. That has largely reflected what's
gone on with the repricing of the US Fedal Reserve.
But if you look at New Zealand's economic fundamentals, our

(03:18):
current account deficit or the chief economist that the New
Zealand Treasury was out last week talking about our productivity problem,
and it's looking a lot more structural. New Zealand's economic
fundamentals did not exactly justify a higher currency. You know,
we need a currency that's going to stimulate the export
sector at the expense of the input sector, and that's

(03:40):
precisely what we're now starting to see.

Speaker 1 (03:41):
Yeah, we'll talk to Emma Higgins about the upside of
the Trump presidency or second Trump presidency. Will interest rates
get to neutral or bottom out whatever terminology you want
to use in twenty twenty five, or will that take
till twenty twenty seve.

Speaker 2 (04:02):
At the moment, I think the central scenario is we'll
get the official cash straight down to around that three
and a half percent sort of number, which is your
broad there where I think neutral is yeah, But if
you go we and have a lot at interstrate, So
if we've gone back twenty to thirty years, you don't
tend to stop at neutral, and that will be where

(04:25):
we stop, I think will be very contingent on the
global economy. If the global economy holds up, particularly the
United States, then there may be the ocr stops around
three and a half, maybe up proud four. But if
we start to see the global economy really start to
struggle and further pressure on the rs of commodity prices,
and if your commodity prices have bounced up, then they

(04:46):
pass out a couple of months. So that's been a
pretty good story in association with the lower New Zealand dollar.
But if we see that global environment deteriorate and it
becomes tougher times out there, then you've got a recipe
for the ocr hitting the low neutral levels. You dropping
back below three to three and a half. But at
the moment, three and a half just seems like it's
the magic number and common sense in regard to we

(05:09):
were going to end up. So we're still a wa
way above that.

Speaker 1 (05:11):
Let's just finish on the fact that you've taken time
out from a board meeting. You're obviously a director a
board member of n ZET apples and pears. What's the
prospect for that industry?

Speaker 2 (05:23):
Well, yeah, the big issue at the moment, Jamie, like
a lot of industries, is just profitability. Yeah, and the
income line doesn't look too bad, but you've just seen
these big surges and costs over the past three years
that it's pretty hard to make a lot of the
numbers stack up. So the industry is going through a

(05:44):
bit of an adjustment phase at the moment. But if
I sit back and think about when you see on
needs to be in the next are ten years, we're
going to need to see a horrible lot more growth
out of sectors such as apples, such as horticulture, we've
got an aspiration the double e sports from the billion

(06:06):
to do two billion along the way. How do you
do that, Well, you've obviously got to have a market access,
but you've got to get the business fundamentals right. You've
got to have access to capital, you've got to have
that reliable labor, and you've got to be productive. So
head down, bump up, long road ahead. But in the sector,
I think Scott, what we're trying to do it's achievable

(06:27):
if we can get some of those fundamentals.

Speaker 1 (06:28):
Good on your Cameron, Begary, thanks for some of your
time today taking time, as I said, out of that
board meeting for ns and apples and pears, and thanks
for your kind nice words about Nicky Kay who passed
away over the weekend.

Speaker 2 (06:42):
All of this