Brad Olsen: Infometrics Principle Economist on the Reserve Bank cutting the OCR, response to tariffs

The Reserve Bank's keeping a watchful eye on global trade developments. 

It's lowered the Official Cash Rate by 25-basis points to 3.5%, with another cut expected next month. 

But it's still waiting to see how trade barriers affect inflation before deciding what to do after that. 

Infometrics Principal Economist Brad Olsen told Andrew Dickens the central bank is right to take a wait-and-see approach. 

He says what's become very clear over the past couple of days, and again this morning, is how everything can change in an instant. 

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Episode Transcript

Speaker 1 (00:00):
Alway, the Reserve Band kept their promised to cut the

(00:01):
official cash rate yesterday afternoon, dropping twenty five basis points
to three point five percent. Nikola Willis has welcomed the news.
She says she's keeping a close eye on the ongoing
global economic instability ahead of this year's budget. They but meanwhile,
and Barbara Edmonds says that they should be spending a
bit more right now to help us through this bad
time and joining us is Infometrics principal economists Brad Olsen

(00:24):
and good morning to you. Brad.

Speaker 2 (00:26):
Good morning.

Speaker 1 (00:27):
So in your opinion, this was the right move, Yes.

Speaker 2 (00:30):
Very much the right move, very sensible and in line
what the Reserve Bank has been talking about previously anyway,
And I think that's important because when we've been looking
through all of the last couple of days, what's become
very clear and again very clear this morning, is all
of this can change in an instance. So I think
for the Reserve Bank, they made it very clear that
they are looking closely at the tariffs. They're trying to

(00:51):
understand all of those trials and tribulations, but at the
same time they're not willing to make a ration move.
They're just trying to understand what's going on.

Speaker 1 (00:59):
First, all right, well, the tap was said the whole
thing when I was talking about this yesterday. We're going, yes,
if you're going to offer certainty to business, just keep
going with the plan. Because the plan is an extreme
zero point twenty five. So that's all right. But we
wanted to kind of know what the Reserve Bank thought
about the global economy. We had tariffs coming into effect
yesterday afternoon. Economists are alsaying they don't know what they're
going to do to the economy. Did you get any

(01:21):
better picture from the Reserve Bank?

Speaker 2 (01:24):
There was a little bit more clarity in there. We
still didn't expect them to have a full, full understanding,
and I think again i'd rather they came out in
May when they do their next month policy statement, with
a full suite of forecast, with a whole bunch of
information that have had time to digest. Also, of course,
the changes that have even come through over night, I
mean a pause to the tariffs, but also ratching up

(01:44):
tensions on China changes the game again for New Zealand.
But the Bank did say that they were clearly concerned
about what it meant for the New Zealand Economy said
that the increased trade barriers globally do create downside risks
to the outlook for economic activity and inflation in New Zealand.
And on the back of that you have seen markets

(02:04):
and in fact some of the wording from the Reserve
Bank generally imply that, yes, interest rates could go lower
because of this. But there was also a little bit
of disagreement amongst the Monetary Policy Committee, it seems, and
I think this is healthy because they really do need
to grapple with what is a pretty challenging topic. Most
members of the committee consider that recent global policy developments

(02:25):
like the tariff stuff has shifted the balance of risks
in New Zealand inflation lower. Others though noted uncertainty around
the inflation outlook and the risks remain balanced. And again
I think that's appropriate. Yes, we're seeing tariffs around the
world and in some senses that could raise prices, but
also if you have weaker economic activity in New Zealand
because we're not trading as much, you could equally see

(02:46):
lower inflashy risks. So they have got to balance this
all up.

Speaker 1 (02:49):
And how about the dollar, because I mentioned this morning,
if the dollar remains low. That means it actually negates
the ten percent increase in prices of our products at America,
if you know what I mean. So if we have
an isolight low dollar, then then we can still keep
our exports at a good price point in America. How's
our dollar doing? What's happening with our dollar?

Speaker 2 (03:06):
I think I saw overnight it's pushed up just to touch,
but that's equally because of this expectation and talk of
a bit of a pause on tariffs. So I think
last I saw it had popped just above fifty six
US sense that had been trading more on that fifty
five and low fifty five through parts of yesterday. Again,
this is almost an automatic stabilizer sort of effect, where

(03:26):
when the challenges come through with those high prices, the
dollar drops to try and compensate, and at the same time,
if you start to see those better conditions, then the
dollar starts to push up a little bit higher. So
I think all of this highlights that we're still in
the early stages of trying to understand this. The Reserve
Bank didn't want to commit too much firepower too quickly.
That's been proven overnight to be very much the right,

(03:48):
call a little bit more of a stay of the course,
and they'll continue to assess in the future. Is good
All the while the global economy still convulsing, and here
in New Zealand we're sort of just watch, waiting and worrying.

Speaker 1 (04:00):
Good on your Brad Olson. I thank you, and of
course Christian Hawksby made the announcements yesterday. He's there for
the next six months and then we don't know what's happening.
Is he a placeholder? Is he acceptable to the government,
Will the government then start agitating for their own or
a more approvable Reserve Bank governor? Will find that out
in the future. Ana Courst the next OCA in May.

Speaker 2 (04:20):
For more from early edition with Ryan Bridge.

Speaker 1 (04:22):
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