Nick Tuffley: ASB Senior Economist on the Reserve Bank raising the Official Cash Rate to 2.5%

The Reserve Bank says more OCR hikes are "likely", but it doesn't know how many more will be needed, or when they're likely to happen. 

The central bank's raised the cash rate to 2.5% – the first hike in more than three years. 

It wants to get the OCR back to a "neutral" level that doesn't contribute to inflation. 

ASB Chief Economist Nick Tuffley told Ryan Bridge they believe the bank will steadily lift interest rates over the rest of the year – bringing the cash rate back to 3.25% by the end of the year. 

He says there is a chance they’ll pause along the way, but having done one, they think it’s very likely they’ll follow through in September. 

LISTEN ABOVE 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
So the Reserve Bank this is before obviously Trump, through
the ceasefire and the bin. However, yesterday they have hight
twenty five basis points up to two and a half
percent his art of Bremen.

Speaker 2 (00:09):
Some of the effects from the conflict are still there
and they will linger for some time. So there's a
risk here that we get more persistence and inflation.

Speaker 1 (00:17):
Nick Toughly with us A Spechief Economists, Nick, good morning,
Good morning. I mean, this is the thing that you're
making judgments and you're making calls and line ball calls
in the midst of a war in a very shaky ceasefire.

Speaker 2 (00:30):
Yes, it doesn't help, and it's one of the things
that the Reserve Banks had to grapple worth with the
last three decisions that it has made. Where it's done
it with this cloud of war and uncertainty hanging over it.

Speaker 1 (00:43):
So what are they do next? Do you reckon another
hike still in September and then crouch, pause and hold
and see what happens after the election.

Speaker 2 (00:52):
Or what we do think the Reserve Bank will steadily
lift interest rates over the rest of the year, So
that would keet the Reserve Bank and it's cash right
back to three hundre quarter percent by the end of
the year. But we do think there is a risk
that they do pause along the way, but it's having
done one and started, we do think it's very lightly
that they'll follow through in September and then you know,

(01:15):
they can keep looking at the lay of the land
and work out the pace of which to titan after that.

Speaker 1 (01:20):
Because obviously the election is in November, and they're not
meant to pay attentions to elect They're meant to be
sort of agnostic, who cares, We will do what we
will do regardless of an election, But deep down they
must have it quite firmly in the back of their mind.

Speaker 2 (01:34):
Well, at the end of the day, the Reserve Bank's
got a clear job to do, and what we have
seen in the passes is that the Reserve Bank will
do what it thinks is the right thing to do
for its inflation target. It's already started lifting interest rates,
so you know, any political sensitivity around that, whether to
start that or not, is already already out the window.
So they'll respond to what they see. By the time

(01:56):
you get through to the September window, we'll have had
some inflation data. We still won't know how the economy
fared over that sort of second quarter which is now
just behind us, So they'll also be wanting to see
what signs of life we're getting out of the economy,
because that's the thing we've hit the pause button. We
are seeing some early good signs of consumer confidence, business
confidence picking up, but we still won't know quite what

(02:20):
that strength of recovery is going to be like and
how that will influence inflation as well.

Speaker 1 (02:24):
Nick toughly Asbee, Chief Economists with us this morning. For
more from Early Edition with Ryan Bridge. Listen live to
News Talks it'd be from five am weekdays, or follow
the podcast on iHeartRadio