Sharon Zollner: ANZ Chief Economist on the OCR likely being cut by 50 basis points

Economists are very confident in a 50-point cut to the Official Cash Rate today. 

The Reserve Bank is expected to drop the OCR from its current 4.25% to 3.75% at 2pm. 

That would follow a 50-basis point cut at the bank's last meeting in November. 

ANZ Chief Economist Sharon Zollner told Andrew Dickens the data has fallen in line with the Reserve Bank’s forecasts.

He says it’s reasonable for the Reserve Bank to expect domestic inflation will continue to fall, and while they don’t want to cause unnecessary pain, they also don’t want inflation to leave the bottom of the band. 

Zollner says that’s why they’re comfortable cutting now. 

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Episode Transcript

Speaker 1 (00:00):
The Reserve Bank. What are they going to do today?
They're expected to cut the OCEA by fifty basis points
to three point seventy five percent. It's locked in, they say,
as a near certainty, but of course we never know
until it actually happens. In the A and ZA chief Economists,
Sharon Zohna joins me, Good morning, Sharon, good morning. What's
going to happen?

Speaker 2 (00:19):
We're also in the camp it says our cup fifty.
They stickled it really, really unusually clearly in November, which
was brave because it was a three month gap until
the actual decision. But as it happens, the data has
fallen what most peop would consider in line with their
four cuts, a few unders and overs, but overall not
challenging their narratives. So you're seeing quite a strong consensus

(00:39):
amongst both economists and market participants at they'll cup fifty today.

Speaker 1 (00:43):
Well there's a few we're around saying don't cut it,
or just to zero point twenty five. Because food prices
are rising. In January, non tradable inflations, baked in American
inflations ticking up, is a possibility of a global trade war.
We've got global instability affecting supply chains. There's some very
real arguments to ty hoe.

Speaker 2 (01:00):
There are there some very real arguments to be cautious
about the medium term outlook. But basically, what happens to
that domestic sticky inflation that the Reserve Bank really cares
about depends on where the economy was that sort of
six months ago, really, and six months ago the economy
was in a pretty dark place. So it's reasonably it's
even for the Reserve Bank to expect that domestic sensation

(01:22):
to continue to fall. And they don't want to overdo things.
I want to cause unnecessary pain, but also they want
to cause inflation to go out the bottom of the band.
So that's why they're comfortable cutting now. But they have
suggested that they will start to move more cautiously as
they get closer to neutral. So that's where it starts
to get interesting. Sidney five, which is where they'd be

(01:42):
after a fifty point cut. Is that closer to neutral?
All the next move the twenty five or fifty There
is some debate on that point.

Speaker 1 (01:50):
Yeah, well, how low could they go? You're quite right.
The debate is between some people saying three point five
that'll be about it. Some people have said or it
could go as lot as three. What do you think, Yeah, some.

Speaker 2 (02:00):
People are saying loud than that. I don't think the
Reserve Bank will necessarily feel the need to be dogmatic
about exactly where the OCR funishes up today. But their
last forecast suggested the OCL we go down to about three,
and I guess the market's probably assuming that they'll show
something similar today. If they show it going there only slowly,

(02:21):
you could see some disappointments from the market in which
tests you could actually see a little bump up and
in illestrates and exchange rates even though they're cutting. On
the other hand, if the market thinks they sound like
they're going to cut faster, you could still see reaction.
So even though they're cutting, the actual reaction on the
day will depend on what they say, their tone, their
forecast compared to what the market is expecting.

Speaker 1 (02:43):
Well, I'm looking forward to what they have to say
and what they have to say about our economy right now.
Share It's always great that you wake up for us,
and I thank you. Sharon Designer is the A and
Z Chiefs Economy Chief Economists.

Speaker 2 (02:54):
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