October 7, 2025 • 4 mins
Economists are split on how far the Reserve Bank will go with slashing the Official Cash Rate.
The central bank will reveal its latest monetary policy decision this afternoon.
There are strong expectations of a cut from three percent, but debate over its size.
ANZ says a 25 basis point cut could be strategic at this point in the cycle, with the OCR near its bottom.
But ASB Chief Economist Nick Tuffley told Mike Hosking he favours a 50 basis point cut.
He says you can make a case either way, but he thinks it's time to give it a firmer nudge than what we've seen recently.
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Speaker 1 (00:00):
So we always love an ocr DA, don't we, But
they seems to have a little extra hanging on at
no real consensus over twenty five or fifty. Nick Toughly's
asb's chief economist and is with us, Nick morning, good morning,
you're fifty. How solid are you on you're fifty.
Speaker 2 (00:13):
Well, I'd like to go to do a pun and
say you're about fifty to fifty on the fifty, probably
about sixty, probably about sixty forty. Look, you can do
a pretty good case either way, but we think it's
just time to give it a firm and nudge than
what the Reserve Bank has recently.
Speaker 1 (00:29):
Do you have many will put any weight on the
stick of shock argument, and that is that the reserve
banker are going to panic a little bit and look
at all the things that have happened since they lasted nothing,
and go, geez, we better do something.
Speaker 2 (00:39):
I don't think it's so much panic, but it's just
a shift or what we expect to see is it's
a recognition that the recovery does have some legs to
get going, but it's just taking longer to keep going.
And I think the really key thing from their point
of viewers is that there's looking like there's a lot
more spere capacity hanging around, and you just need the
economy to grow that much faster to absorb there. Otherwise
(01:00):
you've gotten an issue with inflation being a little bit
weaker than what you expected.
Speaker 1 (01:04):
How much of today is about the basics and the
facts versus the psychology of it all and getting us
out of a funk.
Speaker 2 (01:12):
Usually for the Reserve Bank, it is about the numbers
looking and going, Okay, the recovery has been slower. It
will rebound, but it's not going to be coming quick
enough to absorb the specspare to be quicker and they'll
be eyeing up Okay, we're inflation likely to be sitting.
There's a little bit of psychology in the sense that, look,
the Reserve Bank was expecting to get the cash right
down to two and a half percent by year end,
(01:35):
So it's more a case of okay, if we cut
it a bit quicker, you know, what's the room for
regret around there, and we just think it's relatively small.
If you do actually get people excited and going out
there and spending money and borrowing and getting the economy going,
you know, that's not really too much of a downside.
Speaker 1 (01:52):
What do you think the chances of a fifteen to
twenty five.
Speaker 2 (01:54):
Are we do you think that's the reason. I mean,
it's our base base case. We do think fifty today
would just help jolp things along a bit. We think
that there's a need for the cash rate to go
a little bit lower than two and a half. But
we're getting there near the endpoint, so we do our
base cases, we'll get down to two twenty five and
hopefully by the end of this year.
Speaker 1 (02:14):
Do you expect to split vote on the Monetary Committee?
Speaker 2 (02:17):
Look, I think it's going to be pretty close. I
think last time I was really speculating. We've probably had
two external people voting for a fifty one external voting
for twenty five and the reserve banks star voting for
twenty five. I think the key thing is it six
versus six, three versus three, or we've got six people.
What Christian hawks for the governor decides is going to
(02:39):
be quite critical because his vote counts twice. If they've
got a split three versus three decision.
Speaker 1 (02:44):
What does it tell us about our economy generally that
we're hanging on a cash rate and that means mortgages,
and mortgages means money, and oh god, if we could
only leverage our house just a wee bit more, the
economy might start growing. I mean, if you look at
that in a big picture, it's not that good, is it.
I mean, we should be doing other stuff than relying
on today.
Speaker 2 (03:05):
There are certainly more than today. I think the fact
that people are hanging out for lower interest rates just
tells you about how high and how painful they have
felt for many people. But when you step along beyond
interest rates, lo, what we are looking for is people
to have a bit more spare cash to go and
spend on the things that they normally work that they've
been scrimping on. Importantly, we want businesses to start investing
and looking to the future and making those decisions. But also,
(03:28):
let's not forget we do have an agricultural sector where
there's a lot of cash piling in and they just
also need to get to that point where they've got
their own financial ship into order and then they'll start
going out and spending on fun.
Speaker 1 (03:39):
While I've got you, the FPC, the Financial Policy Committee,
which they announced the Reserve Bank announced yesterday. It's a
thing they're setting up. Is that going to make any
material difference to my life?
Speaker 2 (03:50):
Look, I think a lot of that financial stability stuff,
it's a bit like having an insurance policy. You sort
of don't really read the fine print, just pay the
premium and kind of ignore it, but you actually don't
ever want it to be bumping up and having a
big impact on your life. That usually means something's gone wrong.
So that hopefully the job that committee is going to
be just to make sure that in the background the
(04:11):
New Zealand financial system remained stable.
Speaker 1 (04:14):
All right, Good to talk to you, by the way,
while I've also got you do you reckon as a bubble?
Speaker 2 (04:19):
Look, I think it's one where there's a lot of excitement.
But the thing with technology is often there's a lot
of hype initially that fails to deliver, but over the
long term you get some pretty profound impacts. So I
think we'll see a lot of progress coming over time.
Speaker 1 (04:34):
Always enjoy your company, Appreciate it. Nick Tuffley asb Chief Economists.
For more from the Mic Asking Breakfast, listen live to
news talks it'd be from six am weekdays, or follow
the podcast on iHeartRadio.
So we always love an ocr DA, don't we, But
they seems to have a little extra hanging on at
no real consensus over twenty five or fifty. Nick Toughly's
asb's chief economist and is with us, Nick morning, good morning,
you're fifty. How solid are you on you're fifty.
Speaker 2 (00:13):
Well, I'd like to go to do a pun and
say you're about fifty to fifty on the fifty, probably
about sixty, probably about sixty forty. Look, you can do
a pretty good case either way, but we think it's
just time to give it a firm and nudge than
what the Reserve Bank has recently.
Speaker 1 (00:29):
Do you have many will put any weight on the
stick of shock argument, and that is that the reserve
banker are going to panic a little bit and look
at all the things that have happened since they lasted nothing,
and go, geez, we better do something.
Speaker 2 (00:39):
I don't think it's so much panic, but it's just
a shift or what we expect to see is it's
a recognition that the recovery does have some legs to
get going, but it's just taking longer to keep going.
And I think the really key thing from their point
of viewers is that there's looking like there's a lot
more spere capacity hanging around, and you just need the
economy to grow that much faster to absorb there. Otherwise
(01:00):
you've gotten an issue with inflation being a little bit
weaker than what you expected.
Speaker 1 (01:04):
How much of today is about the basics and the
facts versus the psychology of it all and getting us
out of a funk.
Speaker 2 (01:12):
Usually for the Reserve Bank, it is about the numbers
looking and going, Okay, the recovery has been slower. It
will rebound, but it's not going to be coming quick
enough to absorb the specspare to be quicker and they'll
be eyeing up Okay, we're inflation likely to be sitting.
There's a little bit of psychology in the sense that, look,
the Reserve Bank was expecting to get the cash right
down to two and a half percent by year end,
(01:35):
So it's more a case of okay, if we cut
it a bit quicker, you know, what's the room for
regret around there, and we just think it's relatively small.
If you do actually get people excited and going out
there and spending money and borrowing and getting the economy going,
you know, that's not really too much of a downside.
Speaker 1 (01:52):
What do you think the chances of a fifteen to
twenty five.
Speaker 2 (01:54):
Are we do you think that's the reason. I mean,
it's our base base case. We do think fifty today
would just help jolp things along a bit. We think
that there's a need for the cash rate to go
a little bit lower than two and a half. But
we're getting there near the endpoint, so we do our
base cases, we'll get down to two twenty five and
hopefully by the end of this year.
Speaker 1 (02:14):
Do you expect to split vote on the Monetary Committee?
Speaker 2 (02:17):
Look, I think it's going to be pretty close. I
think last time I was really speculating. We've probably had
two external people voting for a fifty one external voting
for twenty five and the reserve banks star voting for
twenty five. I think the key thing is it six
versus six, three versus three, or we've got six people.
What Christian hawks for the governor decides is going to
(02:39):
be quite critical because his vote counts twice. If they've
got a split three versus three decision.
Speaker 1 (02:44):
What does it tell us about our economy generally that
we're hanging on a cash rate and that means mortgages,
and mortgages means money, and oh god, if we could
only leverage our house just a wee bit more, the
economy might start growing. I mean, if you look at
that in a big picture, it's not that good, is it.
I mean, we should be doing other stuff than relying
on today.
Speaker 2 (03:05):
There are certainly more than today. I think the fact
that people are hanging out for lower interest rates just
tells you about how high and how painful they have
felt for many people. But when you step along beyond
interest rates, lo, what we are looking for is people
to have a bit more spare cash to go and
spend on the things that they normally work that they've
been scrimping on. Importantly, we want businesses to start investing
and looking to the future and making those decisions. But also,
(03:28):
let's not forget we do have an agricultural sector where
there's a lot of cash piling in and they just
also need to get to that point where they've got
their own financial ship into order and then they'll start
going out and spending on fun.
Speaker 1 (03:39):
While I've got you, the FPC, the Financial Policy Committee,
which they announced the Reserve Bank announced yesterday. It's a
thing they're setting up. Is that going to make any
material difference to my life?
Speaker 2 (03:50):
Look, I think a lot of that financial stability stuff,
it's a bit like having an insurance policy. You sort
of don't really read the fine print, just pay the
premium and kind of ignore it, but you actually don't
ever want it to be bumping up and having a
big impact on your life. That usually means something's gone wrong.
So that hopefully the job that committee is going to
be just to make sure that in the background the
(04:11):
New Zealand financial system remained stable.
Speaker 1 (04:14):
All right, Good to talk to you, by the way,
while I've also got you do you reckon as a bubble?
Speaker 2 (04:19):
Look, I think it's one where there's a lot of excitement.
But the thing with technology is often there's a lot
of hype initially that fails to deliver, but over the
long term you get some pretty profound impacts. So I
think we'll see a lot of progress coming over time.
Speaker 1 (04:34):
Always enjoy your company, Appreciate it. Nick Tuffley asb Chief Economists.
For more from the Mic Asking Breakfast, listen live to
news talks it'd be from six am weekdays, or follow
the podcast on iHeartRadio.
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