Gareth Kiernan: Infometrics Chief Forecaster hopeful the Reserve Bank will cut rates in February

Confidence another substantial Official Cash Rate cut's on the cards, with today's figures showing inflation is still under control.

Stats NZ says the rate for the year to December remained unchanged at 2.2 percent.

Inflation is well down from the 2022 high of 7.3 percent, but still higher than the 1.5 percent reached in 2021.

Infometrics Chief Forecaster Gareth Kiernan says he's confident the Reserve Bank will slice 50 basis points from the OCR in February.

"Non-tradeable inflation is still coming down - there's risks on the tradeable side, but I don't think there's enough there to sway the Reserve Bank towards going with a smaller 25 point cut."

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Episode Transcript

Speaker 1 (00:00):
And keeping of course with inflation. It is the big
story of the day, and how is it going to
affect the Reserve Bank, who are making a decision about
our interest rates in February. So we've got all the
four big banks cutting their mortgage interest rates over the
last few days, So there's a signal there. There is
a question as to just how low the official cash
rate will come in in light of these stats and
in light of the fears that inflation might re emerge

(00:22):
a bit over the course of the year. So Gareth
Kennan is Infametrics Principal forecaster and joins me. Now, hello,
Gareth Andrew. So everyone's expecting a fifty point drop in
the OCR. Where do you see the OCR going now
that the inflation figures have actually come in.

Speaker 2 (00:38):
Yeah, we're still sitting with a fifty point drop in
next month's meeting at this stage. I mean, look, the
markets over the last month or so have been looking
internationally at some of the trends that have been going on,
looking at the New Zealand dollar, which is down six
percent over the last three months, and going oh, okay,
there's just some inflationary risks out there that perhaps we're
not seeing when the Reserve Bank last published their forecasts,

(00:59):
but taken to day's started to look their non tradable
inflation is still coming down. The risks on the trade
all side, but I don't think there's enough there to
sway the Reserve Bank towards going with a smaller twenty
five point.

Speaker 1 (01:08):
Cut, okay, and I think the rest of the banks
must agree because they've preemptively started dropping their interest rates.
What do you think has sparked the drop in mortgage
interest rates in our banks?

Speaker 2 (01:18):
Yeah, we've seen some of the shorter term wholesale rates
drifting down, basically following the GDP numbers late last year,
which recourse showed we're in quite a significant recession at
that point in time. We've seen over the last possibly
eight to ten days, that some of those wholesale rates
have actually been drifting a little bit back up again.
So it almost looks to me like the banks have
been away on holiday, they've come back and seen their

(01:39):
funding costs have come down and mostly held down, and
they've reacted to that. Financial markets have priced in a
fifty point cut next month, so there is an element
of passing that on to borrowers.

Speaker 1 (01:51):
As well, and you've done some research and you found
that people who consistently fix for one year get the
best deals. Is that correct.

Speaker 2 (02:00):
Over the longer term years? Certainly when you look through
following the global financial crisis right through until COVID struck us,
the one year rate was pretty consistently the cheapest one
out there if that was what you were consistently doing,
and you know, fixing for longer terms in general was
not going to be as good a bet. Of course,
we know that if you fix for five years back
in twenty twenty one, when the rates were three percent,

(02:21):
you'd be arguing with me. And you know that was
one of these sort of anomalies or unusual situations. But
when we're looking forward again from here, we are expecting
in general the one year rate to be the most attractive,
almost financially beneficial.

Speaker 1 (02:34):
Gas Kennan Fromentals. Can I ask you a question, Can
you fit a waper blade?

Speaker 2 (02:39):
I can for the wiper blade, actually did it for
the first time a couple of months ago. I'm forty eight,
finally finally manage to have the opportunity to do it good.

Speaker 1 (02:46):
And can you hang a picture frame?

Speaker 2 (02:48):
I can do that to you good man.

Speaker 1 (02:49):
Apparently gen Z can't, so we're talking about this in
a few moments time, and I thank you so much
for your time today, Gareth.

Speaker 2 (02:55):
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