Sharon Zollner: ANZ Chief Economist ahead of first OCR announcement since Iran war began

The Reserve Bank is expected to play it safe today as it releases the first Official Cash Rate since the Iran war began. 

Economists predict it'll remain at 2.25% until later this year. 

ANZ Chief Economist Sharon Zollner told Ryan Bridge the conflict is very much inflationary and bad for growth. 

She says until it's clear whether higher interest rates are required to head off persistent inflation or not – the best thing to do is stay in 'wait and see' mode. 

The OCR will be released at 2pm. 

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Episode Transcript

Speaker 1 (00:00):
So first OCR decision today post operation epic fury. This
is from the rbn Z economists. Reckon they'll hold steady
at two point twenty five percent. Sharon zolma A and
Z Chief economs with me this morning. Sharon, good morning,
good morning. So crouch and hold today.

Speaker 2 (00:15):
Yeah, what else are you going to do? Yeah? Yeah,
it's still actually ambiguous how Mountroy policy should respond to this.
It's clearly bad, but it's also clearly inflationary, bad for growth.
There is no right answer for Mountry policy really in
the sort of scenario I sort of do no additional
harm is kind of the best you can hope for.

(00:36):
So until it's clear whether it's going to require higher
interest rates to head off persistent inflation or not, absolutely
the best thing for the Reserve Bank to do is
just stay, wait and see mode.

Speaker 1 (00:48):
The journist asking about seven percent inflation, I'm assuming they're
picking that number because that's how high we got, actually
north of seven percent after the COVID years. But is
there any reason to think it will go that high?

Speaker 2 (01:03):
No? Well, I mean not at this point here and
now today, ask us again tomorrow. You know, we're in
that kind of world. We made assumptions just to put
something in our updated forecasts, and we came up with
the number. But if you assume the oil price peaks
at one hundred and gradually declines from here, that gives
you something like three point six. Now, obviously that's looking

(01:23):
at that hierarque. At this point, it's looking like the
oil price will be higher for longer. We have trumped
sending posts that there's going to be civilizational destruction today,
So I mean that they're oft in terms of your
forecasting sees your inflation at that point. So it's really
absolutely a matter of wait and see. But for the

(01:44):
Reserve Bank, it's really not the point how high inflation goes.
It's how high it stays, how quickly it comes down,
whether it becomes a medium term problem, or whether people
just accept it that it's a one off shift in
the price level and that things will get back normal.
That's the key question from where they sit.

Speaker 1 (02:02):
And are we somewhat insulated by the fact we haven't
been doing as well over the last few years as
other countries have been.

Speaker 2 (02:09):
There's no good time for something like this to happen.
But if you're economy strong, that has advantages but if
your economy has been weak, then you know that's got
some upsides as well. In particular, they're not in a
very frothy time for asset prices. For example, all the
heats come out of house prices already, so you know,
the chances of a crash there is obviously lower from

(02:31):
the fact that the starting point is lower. We're not
in the world where firms are going to find it
particularly easy to pass cost increases through the prices. That's
bad news for them, but good news for the Reserve
Bank in terms of keeping in slate, we're not keeping
inflation low, but making sure it stays low in the
medium term, for example. But yeah, we're seeing different countries

(02:53):
at different points of the cycle. Yeah, being more or
less worried about inflation for exactly those kinds of reasons.
But it's also true that our official cash rate is
starting from a very low point. So there is a
scenario where the Reserve Bank could decide a little bit
sooner than otherwise that maybe they should get it back

(03:14):
to something closer to neutral. We'll have to wait and see.
We're still forecasting to send that. But honestly, the range
of plausible scenarios is obviously much much wider than it
was six weeks ago.

Speaker 1 (03:25):
And changes on every truth social post from a certain
man in the White House, Sharon Zolmer, Ain's chief economists
with us for.

Speaker 2 (03:33):
More from early edition with Ryan Bridge.

Speaker 1 (03:36):
Listen live to News Talks it'd be from five am weekdays,
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