Katlyn Parker: Milford Asset Management Portfolio Manager on the Official Cash Rate being cut by 50 basis points

The Official Cash Rate is on its way down. 

The Reserve Bank has cut the OCR by 50-basis points, from 5.25 to 4.75%. 

It says inflation is within its 1-3% target range and this cut will help maintain that while avoiding unnecessary instability in parts of the economy. 

Katlyn Parker of Milford Asset Management joined Jack Tame to unpack the cut and the impact it will have on the market. 

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Episode Transcript

Speaker 1 (00:00):
Two twenty three, pass six on news talks, you'd be
the market at price in an eighty percent likelihood of
a fifty basis point cut to the OCI today, Caitlin
Parker from ILSE from Milton Asset Management as with US
A savning.

Speaker 2 (00:12):
Yoda, Hi har are you?

Speaker 1 (00:14):
Yeah, very well? Thanks. How did the market react to
the decision?

Speaker 2 (00:19):
Yeah, look like you said once, it wasn't a short thing.
It wasn't a major surprise to the market. So initially
we saw interest rates move a bit leer on the
back of it. The two year hotel interest rate was
down at zero point one percent. Currency was also a
bit weaker, but it wasn't a significant move given largely expected.
And it was really in New Zealand shares where we
saw the biggest reaction in the day, you know, up

(00:40):
about one point seven five percent, and that's because they're
so yield, interest rates sensitives, and it really feels like
the share market was actually waiting for some proof of
this point five percent cut, unlike the currency and interest
rate markets, and we really saw the market rally on
the back of it. So, you know, companies, property companies
like Precinct and Key the Property Group to three percent,

(01:01):
retirement villages like Oceania up two and a half percent.
But ultimately, look, it was a one page statement and
the orbans that they really played it with straight back.

Speaker 1 (01:09):
Yeah, you know, obviously the market was expecting things today.
But how much do you think that market pricing played
into the decision? Is there any way to note?

Speaker 2 (01:19):
Its actually quite interesting. So Urbian Dead did mention in
that small statement that they did discuss both the point
twenty five percent cut and a point five percent cut,
and obviously they landed up the latter, and because that
was most consistent with maintaining low inslation while also seeking
to avoid unnecessary instability. So by that it's essentially a
small knowledge that the market was expecting that point five

(01:41):
percent cut though in order for them to avoid you know,
interest rates moving like largely lower on the back of
them delivering a lower rate cut, that it was somewhat
taken into their consideration.

Speaker 1 (01:53):
Yeah, it's interesting because it's it's very much an inexact
science trying to get hit around how the man of
free pople see cooming he makes these calls. But interesting
to see that line, as you say in the commentary today,
so as the market still expecting another fifty basis point
cut in November or is twenty five more likely? Could
we even see a seventy five Yeah, look as.

Speaker 2 (02:13):
It stands, it is and there was no four guidance
in that statement today. But I suppose on the flip side,
there was no pushback to the market curtently expecting another
point five percent cut in November. And the next cast
is really an inflation report that we'll get next week.
So I reckon if that even comes in a smidge
stronger than expectating expected, you could actually see the market

(02:34):
starting to price in a potential of a point seventy
five percent cut, right, you know the last time we
saw it cut bigger than point five percent was March
twenty twenty. But it really comes down to the orbans.
I believe that they have inflation under control, so any
worry of an inflatory threat coming back, it could actually
move the door open for a larger cut. And November
is the last meeting, right, so they're not going to

(02:54):
meet again after November until mid February, so that's a
long time. So you really could just if the data
proves that a larger cut is needed, because even where
we are in there. We're still in that restrictive territory.
So to get back to neutral, there's still a lot
of scope for interest right cuts to come.

Speaker 1 (03:10):
So if we're wanting a seventy five basis point cut,
what number do we need to see next week and
the CPI data.

Speaker 2 (03:15):
Is released, Oh look, larger and unexpected. And it also
will depend on the makeup as well, how much of
it is generated domestically, we'll really come into play.

Speaker 1 (03:24):
Yeah, hey, thanks so much. That's yeah, thanks, Kaitlyn, appreciate it.
That is Caitlyn Parker.

Speaker 2 (03:30):
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