Brad Olsen: Infometrics Principal Economist on the Reserve Bank cutting the OCR by 50 basis points

There's questions over what will come next for the OCR after today's 50 basis point cut.

The Reserve Bank has hinted more cuts will come in the new year.

However, Infometrics Principal Economist Brad Olsen has warned this might not be the right approach.

"A lot of economic forecasters are wondering - when do we get back to those more normal and considered steps, given that the economy is already starting to show some early signs of turning around?"

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Good afternoon. Banks have immediately started cutting their mortgage rates
after the Reserve Bank today cut the official cash rate
by fifty basis points, so the ocr is now sitting
at four point two five percent. The Reserve Bank Governor
Adrian Or acknowledged it's been a tough time for New.

Speaker 2 (00:13):
Zealand, Terrah has you know, we've been doing it tough
over the last couple of years. We've been part responsible
for that. But the higher interest rate, you know, inflation
is evil. We have been making sure we can squeeze
it out of the economy. I know it's been challenging
for many many people and will continue to be so

(00:36):
overcoming months.

Speaker 1 (00:37):
Infamatrix principal economist Brad Olson's with me. Now, Hey, Brad,
good evening. Are you surprised they didn't think about seventy
five basis point cut at all.

Speaker 3 (00:45):
I'm a little bit surprised they didn't really consider anything
apart from fifty. You know, the governor highlighted in his
press conference that they sort of thought fifty was the
right place, and so they didn't really toss up doing
anything different. You know, they didn't toss up going smaller
at twenty five. They didn't toss up going larger at
seventy five, So fairly confident view from the Reserve Bank
that fifty was the right move. And look, I don't

(01:05):
think anyone will disagree that it's a healthy decline that's
coming through. The question I think for now is we're
too next and how quickly there's now a three month
break before the Reserve Bank meets again. The Governor sort
of seemed to imply or certainly didn't shoot down the
view that fifty basis points in February almost seems to
be the baseline case or the live option. But a

(01:26):
lot of economic forecast is wondering when do we get
back to those sort of more normal considered steps, given
the economy is already starting to show some early signs
of turning around. So right move today, very sensible sort
of pick and sort of but looking into the future
a bit more uncertain.

Speaker 1 (01:41):
Yeah, what makes you think that he's considering a fifty
because it sounded like a twenty five to me in February.

Speaker 3 (01:47):
Well, he sort of highlighted that actually, you know, when
he looked through the numbers, he sort of said fifty
felt right, and particularly considering the forward track that leaves
the door open for another fifty point cut. I mean
that that was his own words, so I think he
sort of opened They've got options, and that is important
because for such a long time it sort of felt
like we were always sort of on the back foot.

(02:08):
I think the Reserve Banks sort of wrestled back a
bit more control here, which is important. Inflation are now
well under control, the unemployment rate increasing, but not quite
as steeply as might have been feared. Again, interest rates
coming down, some early signs that spending is turning around,
so all of that will be encouraging for the bank.
But also, you know, they've cut just how much potential

(02:29):
they think is out there in the economy in the future.
So still some pretty difficult times, and people won't immediately
refix onto those lower mortgage rates. But again looking up
over time.

Speaker 1 (02:39):
Brad kee we Bank's argument is that at four point
twenty five, it's still restrictive, and even the Reserve Banks
governor said that himself today it's still a restrictive level.
He's still strangling the economy to an extent. Kee we
Bank reckons you have to get to about three point
five before it's neutral. What's the argument for keeping us
in a restrictive setting when we are so stuffed at
the moment.

Speaker 3 (02:57):
You know, I think the Reserve Bank is sort of
also pretty cool, And they did outline in their statement
today as well they're sort of worry about some of
those inflationary pressures that could persist, could spike back up,
but more importantly some of that sort of more medium
term stuff where you don't sort of want to be
sort of going through. And we have seen this from
the Reserve Bank and you know, years gone past, where
they sort of either cut too much, raised too much

(03:19):
and then have to reverse out. But I think that
the big question, right is that if they go by
fifty again in February, that only leaves them maybe one
more twenty five basis point cut. And I get the
thing for that we're looking at at the moment as
economists is that fifty is still like a bigger move.
And so to go from sort of you know, fifty

(03:39):
then to twenty five then to just nothing would be
quite an abrupt maybe endo it. So again that sort
of question is does the Reserve Bank here if there's
an abrupt end or do they say, actually, look, we've
got interest rates back to where we want them to be.
And so if it's a fifty and then done, maybe
that's it.

Speaker 1 (03:55):
Okay, Well, Brad, thanks very much. Appreciate a Brad Awsome
Informetrix Principle Economist. For more from Heather Duplessy Allen Drive,
listen live to news Talks it'd be from four pm weekdays,
or follow the podcast on iHeartRadio