Mike Jones: BNZ Chief Economist on the probable 50 basis point cut to the OCR

Another large cut to the Official Cash Rate's on the cards today. 

Economists and markets are almost certain the Reserve Bank will slash the OCR by 50-basis points. 

That would take the cash rate from its current 4.25% to 3.75%. 

BNZ Chief Economist Mike Jones told Mike Hosking that things are tracking as the Reserve Bank expected when they last met in November of last year. 

He says that in that meeting, the Reserve Bank essentially said they would cut 50 points unless something threw them wildly off track, and he doesn’t believe that’s happened. 

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Episode Transcript

Speaker 1 (00:00):
So Australia came to the punter's party yesterday with their
first interest rate cut and over four years today it's
our turn. We've been in the business of course for ages,
given we overheated the place, and it's another fifty today.
But then what next is the interesting scenario. BNZ chief
economist Mike Jones with us Mike Morning, Mite. Is there
any anyone out there who doesn't say fifty?

Speaker 2 (00:20):
Not as far as I'm aware. It's just about as
consensus a view as are ever going to get. I mean,
all of the people like me are calling it. And
markets are baked in a fifty with just about one
hundred percent precision. So it looks looks unindusted from.

Speaker 1 (00:33):
Us and some of these numbers we've seen in the
last week or so, the inflation figures might be a
bit of life there, the manufacturing services sector turning around.
Do they take into account any of that or not?

Speaker 2 (00:43):
Yeah, I mean there's been some unders and overs I
think when you put it all together, though, things are
tracking pretty well as the Reserve Bank expected when they
last met back in November. And let's not forget when
they met in November they basically said they're going to
cut fifty points today unless something sort of wildly threw
them off off track, and I don't think that has happened,
so it looks likely that will get that big cut today.

Speaker 1 (01:05):
And how much consensus have we got round post fifty.
Is it twenty five and twenty five and we're done
or not?

Speaker 2 (01:12):
I know. I think from here it gets trickier. I
think the reducy bit in the statement today is going
to be what the bank say is about the path
for interest rates from here, So it's going to be
this mad scramble as we all go to the back
of the document and have a look at the forecast.
I think there is an expectation that things will slow
down to that more regulation twenty five basis point cut
permitting type of run rate. But I think really the

(01:36):
interest is in just how low it goes. Our expectation
is the sort of neutral around three percent or maybe
a little bit below that. But there's different opinions there.

Speaker 1 (01:46):
How much of the psychology is at play at this
particular point. And I cite those numbers, and I cite
this ongoing commentary that apparently by the end of the
year things are going to be growing again. Need people
to think and believe that and act on it, don't
we And who can guess whether that's going to happen.

Speaker 2 (02:06):
I think that's right, and I think if you look
at the numbers that are coming through, there has been
this big divergence between confidence and in confidence. Business confidence
and confidence has been riding high on the expectation their
interest rates keep climbing, but we haven't really seen that
much evidence so far and the hard numbers that the
economy is turning around. Now we are starting just just

(02:26):
this week and last to see a little bit more
that in that regard, which I think is encouraging. But
you know that the recovery is by no means assured,
And I think the point is that recovery is built
on the expectation that rates keep coming down from here.
So today's fifty, you know, won't be the last. I
think we see the need to keep cutting the official
construp from here to get stimulus back into the economy.

Speaker 1 (02:49):
Rad stuff, Mike, appreciate it, Mike Joones, who's with the
B and Z chief economists for them.

Speaker 2 (02:53):
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