Nicola Willis: Finance Minister on the impact of the OCR cut and dropping interest rates

Banks could soon be competing a bit harder for our business. 

The Reserve Bank's signalling yesterday's double cut to the OCR will be followed by at least two more single cuts at the next reviews in April and May. 

Finance Minister Nicola Willis told Andrew Dickens that's going to drive banks' rates down. 

She says mortgage-holders and small businesses should be expecting to see their interest rates keep dropping. 

Governor Adrian Orr says banks that don't cut their rates enough could lose market share to their competitors. 

He says banks will be "sniffing and hunting" for business and may even have reduce their profit margins. 

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Episode Transcript

Speaker 1 (00:00):
So good news for mortgage holders. The official cash rate
yesterday dropped by fifty basis points. It's down to three
point seventy five percent. The question is will the banks
pass it on? Well, banks have already started doing that,
and Finance Minister Nichola Willis joins me. Now, hello, Nicola, Hi,
how are you. I'm good good news for us, good
news for mortgage holders. What does it say about our economy?

Speaker 2 (00:21):
Well, it says that things are going to get better
for New Zealanders who are worried about the cost of
learning because their mortgages are going to get cheaper. And
the Reserve Bank is confirming the view that the economy
is going to grow this year, which means more people
on jobs, more business is doing well, and more wealth.

Speaker 1 (00:39):
And in our economy this is true. The Reserve Bank has
made it clear that there will be more cuts. Do
you believe that because there is an argument that we
shouldn't be going to heart right now, considering the global situation,
considering the baked in non tradable inflation that we've got.
You know, we see rate rises the whole time, we
see water rises the whole time. Do you belie that

(01:00):
there will be more cuts.

Speaker 2 (01:02):
Well, the Reserve Bank is forecasting more cuts, that's very clear.
They see that interrast rate reductions will continue for the
year ahead, and that's based on their view that New
Zealand has inflation under control, which is very good news
for all New Zealanders. It means less price rises and
it also means that interest rates can keep coming down.
So if you've got a mortgage or you're a small business,

(01:24):
interest rates are going to keep dropping.

Speaker 1 (01:27):
So is the fact that inflation is now under control.
Who should get the credit? Is it because of your
policies and your fiscal management or is it just the
consequence of the Reserve bank squeeze of money supply over
the past two years.

Speaker 2 (01:40):
Well, the Reserve Bank has the decision making power when
it comes to reducing interest rates. All we can do
is the government is make it easier for them, and
we have since coming to government, we have been disciplined
about government spending. We went through a period as a
country where the government was spending more than it ever
has even while inflation was driving to generational high as

(02:03):
it was up at more than seven percent, and the
government kept on spending, and that makes it hard for
the Reserve Bank produced infrastrates. So now it's in a
different point of the cycle where it can look at
a government that's saying, well, be restrained, please just drop
interest rates, and.

Speaker 1 (02:19):
They are yes, Well, there's good spending and there's bad spending.
And I know. Over the weekend, Engineering New Zealand and
Philip Templar wrote a piece complaining about the lack of
spending on any infrastructure and the fact that because there
is no investment from the government in our infrastructure, we
are losing our best and brightest engineers to Australia and
the rebuild in America. So the question is when will

(02:39):
you start spending.

Speaker 2 (02:41):
Well, one of the things that drives me in politics
is wanting new skilled New Zealanders to stay here in
this great country. The factor is that we are spending
more on infrastructure than the previous government was forecasting to do.
We are continuing to invest in building hospitals and building
schools and building roads and we will keep doing so.

(03:03):
We need to also paint a better future for New
Zealanders and that is why we are so focused on
growing the economy so that we can create better opportunities
than the years ahead.

Speaker 1 (03:14):
Are we building roads, Yes, we are.

Speaker 2 (03:17):
I mean, we just last week opened the new road
in the Hawk's Bay. We've got new roads happening in
christ Church. We've got new roads of national significance happening
across the country. We've got a record investment in the
National Land Transport Fund so that we can build roads
that will make a difference to New Zealander who can

(03:38):
meet from one region to another.

Speaker 1 (03:40):
Those roads were ordered by another regime. What I'm asking is,
what are you going to do?

Speaker 2 (03:44):
No, we have announced new projects, Andrew.

Speaker 1 (03:47):
Yes, but I'm just doing the light rail thing with you.
If you know what I mean. You know we announce projects,
but it's not a project until a side has turned.

Speaker 2 (03:57):
Well, you are making a very good point, which is
we did cancel fantasy projects. I don't think anyone in
Auckland thought light rail was actually going to happen. Yes,
there are a lot of people involved in designing it,
but it wasn't ever going to happen. And similarly with
the Lake Conslow hydro project, that was never going to
happen either. We're focusing our resources on projects we will
actually open, and that's roads of national significance, that's big hospitals,

(04:21):
that schools. We're doing things where we invest the resources
and projects we will fund and we will di liver.

Speaker 1 (04:27):
Okay, yes you're cutting the spending, but you're still having
to continue the borrowing because we have so we have
huge interest payments. Our dollar has had a year long
slide downward, and I want to know what's that doing
to our debt and its repayment and our economy.

Speaker 2 (04:42):
Well, we have a flexible exchange rate, and the plus
side of that is it means that when our dollar
is coming down, our exporters get more for their exporting
and so if you're a dairy farmer or you're a
sheep farmer right now, there is a plus side to that. Overall,
it means that our exchange rate is adjusting to the

(05:03):
circumstances that are happening around the world. New Zealand just
needs to keep doing what it's always done well, which
is selling our beautiful, amazing products around the world for
good prices, and we will keep doing that.

Speaker 1 (05:17):
Nikola Willis Finance Minister. I thank you for your time today.

Speaker 2 (05:21):
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