Robert MacCulloch: Auckland University economics professor warns against cutting the OCR

An economics expert says cutting the Official Cash Rate is unwarranted.

The Reserve Bank is set to release its first 2025 OCR decision on Wednesday.

Many economists are predicting a 50 basis point cut - from 4.25 percent to 3.75.

Auckland University economics professor Robert MacCulloch says the bank's only meant to focus on inflation, which is already on target.

"They're not looking at the inflation rate - it's exactly at 2 percent. But they're panicking about the state of the economy, that's the truth. I think that's what's going on."

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Episode Transcript

Speaker 1 (00:00):
Cray and Bridge.

Speaker 2 (00:01):
Most economists expecting the official cash right to be cut
this week fifty basis points to three point seventy five percent.
Inflation currently running at two point two percent, so inside
the range. Interestingly, though not crucially, food price inflation is
actually on the rise again. Economics professor Robert McCulloch is
with me, Robert, Good evening.

Speaker 1 (00:18):
Good evening.

Speaker 2 (00:19):
There's two questions, Will they cut and then should they cut?
Will they cut?

Speaker 1 (00:24):
Probably, that's what most of the big bank monopoly economists
are saying. And Liam down at the Herald said they're
going to cut, so they you know, that's what they're
all saying.

Speaker 2 (00:36):
Well, if Lillam says it, it's true.

Speaker 1 (00:38):
If Liam says it must be true. That the Herald
says it's true, it has to be true.

Speaker 2 (00:42):
Exactly. We love Liam. Should they cut?

Speaker 1 (00:47):
No? I think they probably shouldn't cut. No. Why Well,
Nicola Willis changed the Reserve Bank Act the Finance Minister
when she came to power, and the old mandate of
the Reserve Bank by law is price stability, and that's
to find it. It's getting inflation in that one to

(01:08):
three percent bracket. And like you said in your introduction.
Where is it now? It's exactly at the midpoint, it's
two percent. Well, it's quite hard to argue with the
one line argument. We're exactly at the midpoint, inflation is there,
and yet the bank and the big bank economists are
all baying for even more cuts. So one has to

(01:31):
ask why.

Speaker 2 (01:32):
Well, they're also I suppose got an eye on the
wider economy and the fact that we're up Shite Creek
without a paddle.

Speaker 1 (01:39):
I think that's the answer. Exactly. They're panicking and they
think the economy is in a terrible state, is it. Well,
you asked me the question should they cut? And by law,
the Reserve Bank Act, which was passed by the incoming Coalition,

(02:00):
says you should only consider the rate of inflation when
you make these decisions. That's the law of the country. Now.
Before it said you could consider the state of the economy,
it said maximum sustainable employment as well as price stability.
So by law they're only meant to look at inflation.
But I think you're exactly right. What are they doing.

(02:23):
They're not looking at the inflation rate. It's exactly two percent,
but they're panicking about the state of the economy. That's
the truth. I think that's what is actually going on.

Speaker 2 (02:32):
Robert, thank you. Robert McCulloch, who's an economics professor with US.
A contrary, well, I suppose it's not so much of
a contrarian view. He's just saying, yes, he thinks they
will cut, like everybody else is saying, but technically, by
the letter of the law, they really shouldn't.

Speaker 1 (02:47):
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