Christian Hawkesby: Acting Reserve Bank Governor on the OCR being cut to 2.25%

The Reserve Bank Governor is leaving the job tomorrow with no major regrets about the pace of OCR cuts. 

The cash rate's dropped 25 basis points to 2.25%. 

Forward-projections suggest this will be the end of the current cycle of OCR cuts, with inflation expected to ease and the economy expected to recover in the new year. 

Governor Christian Hawkesby told Mike Hosking they've been responding to circumstances. 

He says they've been dealing with a stall in economic recovery while focusing on their mandate of controlling inflation. 

Hawkesby says it's hard to say exactly why New Zealand's recovery has stalled more than other countries, telling Hosking there isn't one clear reason for the downturn this year. 

He says it's a bit of a puzzle, with tariffs and cautiousness both playing a role, and that's why last month's cut was needed to kickstart the economy. 

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Episode Transcript

Speaker 1 (00:00):
Twenty three to eight, one more time for the Interim
Reserve Bank governor twenty five points. It was cash rate
of two point two five a general sense, the job
has done, the rates are low, inflation will come down further,
and those green shoots of twenty six can prosper. Christian
Harksby's were this morning today. If this broadly is it,
and you want to bring back boring and boring does
come back, how would you assess your committee's handling of

(00:21):
this whole exercise?

Speaker 2 (00:26):
What's the which exercise, the whole.

Speaker 1 (00:28):
Year of exercise, the large number of cuts, the commentary,
all that came with it.

Speaker 2 (00:34):
We've been playing, you know, playing the wats in front
of us, an economy that was in recovery at the
beginning of the year, stalled in the middle, and you know,
just responding that through time according to what it means
for our inflation mandate and our inflation target. We I think,
in particular, the fifty basis point cut in October was

(00:59):
really designed to as a shot in the arm to
get rid of that excessively cautious mindset and businesses and
households and really kickstart the recovery, which we're confident is
happening through the second half of this year, and that
will continue on into next the fifteen. Things running at
about a three percent annualized race at the moment.

Speaker 1 (01:20):
The fifty percent cut came off the back of course,
of nothing in the middle of the year. Was the
nothing the no move? Was that a mistake? With the
benefit of hindsight.

Speaker 2 (01:29):
We were worried through the first half of this year
about inflation expectations and just living in that world where
inflation had been quite high recently and just how much
that was going to linger. So that had been an
upside risk right through the course of the first half
of this year. I think in the second half that
has abated and given us more confidence that we can

(01:49):
get rates lower and get on with things.

Speaker 1 (01:52):
The lack of response to the stimulation, and once again
talking about pretty much the whole year, this whole journey,
did you overcook your belief in the power of a
cut or are we just in a funk and nothing
you could do was going to shift us.

Speaker 2 (02:07):
It is a little bit of a puzzle. I mean
that New Zealand has has struggled a bit more than
other countries through this middle part of the year. Some
of it's through you know. Some of it's because of
the global tariff, you know, situation in uncertainty. Some of
it is just caution, you know, and that's why we
really needed that sort of kickstart through October and to

(02:30):
the end of the year.

Speaker 1 (02:32):
Yeah, the five to one vote, who's the one.

Speaker 2 (02:36):
Not disclosed? Was it?

Speaker 1 (02:38):
You?

Speaker 2 (02:40):
Not disclosed?

Speaker 1 (02:41):
Why not? Because I'm finding the FED fascinating as I'm
sure you are. I know what the FED thinks and
they talk about it publicly. Wouldn't we be better off
if you guys did that.

Speaker 2 (02:52):
I think we're probably on a pathway to do that,
to be especially the external members of the NPC. You know,
it was quite restrictive on them initially. It's more permissive
now for them to get out and talk. Prisana guy
who's one of our externals, has been out talking more often.
I think that's probably the direction of travel. There will

(03:13):
be more from the different members. We need to be
careful though, because you know, I look at places like
the UK and the US and you have all these
different members in different corners, and you know, they're really
fighting their corner. They're not listening to each other and
sort of trying to work towards the best best outcome,
and you get places like the UK where you have

(03:33):
three ways splits between different members. And what do you
make of that if you're in the market.

Speaker 1 (03:38):
Yeah, well, at least you know though, don't you.

Speaker 2 (03:41):
Well doesn't really give you a good sense of the
direction of travel of.

Speaker 1 (03:44):
The well, it gives you the same that everyone's disagreeing
with each other.

Speaker 2 (03:49):
That's one thing you can take from it.

Speaker 1 (03:51):
Now, the Q two Q three thing that you talked
about yesterday I found fascinating. I am told there's a
fairly significant revision in some way, shape or form coming
to Q two. Is that your understanding it? If it is,
what's it revised to? Ish?

Speaker 2 (04:05):
It's not that Q two will be revised or I mean,
it may be revised, but it's more sort of a
timing issue that there are seasonal you know, there could
be some revision there, but there could also be some
seasonal adjustments as well. Such that's kind of Q three
and particularly Q four gets bumped upright and kind of

(04:26):
looks probably bigger than it really is as an underlying number.
So yeah, there's a lot of noise in that Q
two number. But even if you strip it out. We
still think the economy contracted through that period, but going forward,
much more confidence about Q three and Q four being
on the.

Speaker 1 (04:44):
App in a calendar year, then we're going to get
some decent growth, aren't well. If you go back to
Q one, revise up Q two a bit, even if
it's negative, Q three looks solid and for metrics had
zero point nine. Q four looks Okay, that's growth, isn't it.

Speaker 2 (04:58):
I mean modest over the calendar year. If you look
over the second half the year, we think you're at
a run rate of getting up towards three percent over
that final six months, which, as you say, is a good,
good run rack to have, and it's something we need
to have because we've got a lot of spare capacity
in the economy. I've got a lot of headroom and
that's partly why we've been cutting interest rates to close

(05:22):
that gap.

Speaker 1 (05:23):
All right, do you Christian? This will be the final
time we talk unless you're going to be a politician
or something. Are you heading off overseas? Have you got
a new job, what are you going to do?

Speaker 2 (05:31):
I am focused. I've been focused on getting to the
finish line and the role that I'm in at the
moment and then just have a really long and good
break over the summer wearing a T shirt candles shorts
for as long as I can.

Speaker 1 (05:44):
Were you disappointed you didn't get the big job.

Speaker 2 (05:48):
I'm excited about doing something different. I've been on the
Monetary Policy Committee for seven years now. I've done forty
nine meetings, forty nine decisions at time to do something else?

Speaker 1 (06:01):
And what are your observations of doctor Emma Breman. Is
she going to be a rock star?

Speaker 2 (06:06):
I think she'll be great. I've had six meetings with
her as part of the sort of induction and handover. Yeah,
she'll do a great job.

Speaker 1 (06:15):
I'm sure good stuff and I wish you very best
for the holiday season. Christian hawksby the Well almost airs
of Monday, the former Interim Reserve Bank Governor. For more
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