Kelly Eckhold: Westpac Chief Economist weighs in on latest OCR cut

The Reserve Bank's Monetary Policy Committee revealed it failed to reach a consensus today - before they voted to cut the OCR 25 basis points to 3.25 percent.

But Westpac Chief Economist Kelly Eckhold says that's surprising.

He explained that the fact someone is prepared to put their hand up and say they wouldn't support the move shows it was more a line-ball call than they were expecting.

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Episode Transcript

Speaker 1 (00:00):
Afternoon, the Reserve Bank has cut the official cash rate
by twenty five bases points to three point twenty five percent.
Inflation still worries them. They're tapping it to rise further
before the end of this year, but the economy is
clearly stuffed and will be for a while. Cali Echoled
is West Pax chief economist. Hi Kelly, Hi, I'm well,
thank you. Why did they cut off their expecting inflation
to still go up.

Speaker 2 (00:21):
Well, I think they're anticipating that inflation is going to
come back again after we get past this near term
bump towards the end of the year. They think that
the unemployment rates still above nairou, so that's going to
be putting some downward pressure on wage growth. They think
we've got a bit of excess capacity in the economy
that should bring inflation to heal over time.

Speaker 1 (00:44):
Should they have looked through it, Then they.

Speaker 2 (00:47):
Have looked through it, at least to some extent. They're
certainly not talking about putting interest rates up. But what
it is telling you, though, is that they're not so
sure about how much further they need to put interest
rates down, so that they're just slowing the pace of
easing a bit.

Speaker 1 (01:03):
Do you think they've done the right thing, given how
stuff the economy isn't given the fact that they are
still a handbrake on the economy, should they have gone
for fifty.

Speaker 2 (01:11):
I don't think so. I mean, firstly, we have to
remember that their mandate has been squarely just put on
the inflation outlook, and the inflation outlook is looking a
little bit uncomfortable, particularly for the balance of this year.
You're basically looking at seeing headline inflation closer to three
percent and two percent. I'm not so sure that the

(01:34):
Reserve Bank is really a handbreak on the economy right now. Either.
Interst Rates are fallen a long way, and you can
see some evidence of that occurring through many indicators that
are out there. We're not certainly booming by any stretch
of the imagination, so it does take a while.

Speaker 1 (01:50):
Where do you think neutral is then?

Speaker 2 (01:53):
Oh, I've been arguing that it's probably close to three
point seventy five percent, and we've just sort of like
dipped through that level now in the last couple of meetings.

Speaker 1 (02:01):
Okay, Hey, what do you make of the fact that
they weren't unanimous?

Speaker 2 (02:05):
Well, clearly there is some dissension in the ranks. I
had expected that we would see signs of increased debate
in terms of how the outlook would go, but I
didn't think they'd be very much debate about needing to
cut rates. Now, the fact that somebody's prepared to put
their hand up and say, actually, I just think we
should wait here tells you that, you know, there was

(02:28):
a bit of more of a wineball call than we
were all expecting.

Speaker 1 (02:31):
Now, tell me, how would you describe the economy right
because they've cut their growth forecast even from the last
time when they met in February. What do you would
you would you say the economy is stuffed or what
would you say?

Speaker 2 (02:42):
Oh? No, I would say the economy is slowly recovering.
The Reserve banks revised growth forecasts are more negative in
our own. That's one of the reasons why they've still
projecting a need for one more cut and possibly another
one in the course of the rest of this year.
It remains to be seen, though, whether the economy is

(03:02):
really going to be as weak as that. I think
they're really kind of pricing in the possibility that business
might just take a bit of a step back with
the global situation looking a bit more uncertain.

Speaker 1 (03:13):
I'm liking your optimism, Kelly. Thank you for that, Kelly
are Cold Chief economist whispac.

Speaker 2 (03:17):
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