Sharon Zollner: ANZ chief economist on the bank predicting interest rates will drop further than expected

ANZ is speculating interest rates will drop lower than previously expected - as the economy is predicted to need extra help to recover.

The bank believes the OCR will bottom out at 2.5 percent, down from the 3 percent low that was previously predicted.

ANZ chief economist Sharon Zollner says it's likely the Reserve Bank will give the economy an additional 'push in the back' to help boost a recovery.

"It's too soon to make any concrete judgements on what might happen to our commodity prices or anything like that - but it does seem pretty likely that some pretty full-on uncertainty is going to persist for quite a long time." 

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Now am Z reckons that we're headed for lower interest
rates than we possibly previously thought. They reckon the official
cash rate will bottom out at two point five percent.
That's down from the three percent low they'd previously expected,
and just for context, it's currently setting at three and
a half percent. Now. Sharon Zolner is A and z's
chief economists and with us. Now, hey, Sharon, good evening.
Why are you changing your forecast? Is this because of

(00:21):
Trump's tariffs or is it because of our own sluggish recovery?
Or is it a bit of both, a bit of both.

Speaker 2 (00:26):
Yeah, So the economy is recovering, and what's encouraging is
that it's really broad based. And indeed, you know, why
wouldn't it recover because we're coming out of a recession
that was deliberately caused by higher interest rates, and rates
have come down a long way. So that's the good news.
But you know, just a few data points lately have
been a bit on the soft side. The housing market's
going there, we're fast, The services index was pretty low.

(00:47):
The quarterly Survey of Business Opinion suggests there's some downside
risks to the near term GDP and that sort of thing,
and then you've got the headwinds from offshore. Now, it's
too soon to make any concrete judgments on what might
happen to our commodity prices or anything like that, but
it does seem pretty likely that some pretty full on
uncertainty is going to persist for quite a long time,

(01:08):
and that in itself is actually quite a headwind for
the likes of investment and employment if firms just hit pause.
So we think there was a bank or just needs
to give the economy a bit more of a push
in the back to make sure it keeps moving forward.

Speaker 1 (01:21):
So what's going on with our recovery? Why is it
so sluggish?

Speaker 2 (01:26):
Well, I think we fell into a pretty deep hole.
Maybe be broken ankle. You know the new GDP data,
Well it's not that new anymore, but the revisions to
the GDP certainly show that it was pretty rough. Economy
found more than one percent in each of the second
and third quarters last year. So I think, you know,
you do get some damage done from that sort of thing.

(01:47):
So it just I think it just takes a while
for firms to believe really that things are going to
get better in that it is worth taking a bit
of a punt on that new employee or that new
machine or whatever it might be, and consumer, Yeah, the
cost of living crisis is still real for many. Inflation
has come down a long way, but prices heaven't. So
I think maybe to some extent, consumers are waiting for

(02:07):
prices to fall back to where they should be, But
actually lower inflation just means price is still going up,
just not as quickly. So I think that perception will persist,
perhaps even longer than the fact in terms of everything
being unaffordable.

Speaker 1 (02:23):
Sharon, tell me what's your gut feel on the impact
of Trump's tariffs on the global economy. Are we talking
about freak out nineteen thirties depression stuff or are we
talking about who everything just slows down and we go
backwards a little bit.

Speaker 2 (02:36):
Well, I'm sure we could find any lots of people
bunding at different points on that spectrum. Obviously the nineteen
thirties is the extreme, but we have seen a lot
of volatility in markets. But what's actually really caused a
bit of a freak out was the unusual behavior of
the US bond market. So typically when equity s crash,
people are compensated for the bond part of their portfolio.

(02:58):
That wasn't the case only for a couple of days,
but that was just a little straw in the wind
that has made to people jittery. So it's going to
take quite a lot for everyone to just just just
accept again that the US is a SI.

Speaker 1 (03:13):
So are you saying kind of are you saying what
we should expect is we have a bit of a slowdown,
but there is the chance that there is the outside
chance that we do head into like worst case scenario
nineteen thirties depression stuff.

Speaker 2 (03:25):
Again, No, no, no, you're putting words in my mouth.
I'm saying there is a chance that the markets are
jitary and so I think that is constraining policy options
at the moment. I think some lessons have been learned
in the last week or two about you know, move
fast and break things can have quite serious consequences, so

(03:46):
I think they will tread more cautiously. But you'd be
a brave person to be definitive about what an earth
will happen next. But you know, for in New Zealand's case,
the dairy prices went up overnight, so it's really not
obvious that that New Zealand is going to take a
clobbering from this at all, but that uncertainty thing that
looks unavoidable.

Speaker 1 (04:05):
Yeah, Hey, Sharon, as always, thank you so much, Really
appreciate your expertise at Sharon Zolner, a and z's chief economist.
For more from Hither Duplessy Allen Drive, listen live to
news talks it'd B from four pm weekdays, or follow
the podcast on iHeartRadio