Steven Joyce: Former Finance Minister on the likelihood of an OCR cut today

Reserve Bank Governor Adrian Orr is facing a tough decision on whether to cut the Official Cash Rate today. 

Financial markets are pricing in a cut, but economists remain divided on whether that should happen. 

Former Finance Minister Steven Joyce says Orr doesn't want to act too quickly and risk having to backtrack if non-tradable inflation continues to remain high. 

But, he told Mike Hosking, neither does he want to act too slowly and see the economy stagnate or decline. 

Joyce says many businesses are struggling and the energy shortage is going to significantly reduce production in the months ahead. 

LISTEN ABOVE 

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
So to those Reserve Bank announcement almost has a heavyweight
fight commentary by way of lead up, doesn't it. The
expectation has been spread, the potential for disappointments real. The
second guessing's gone, next level retail banks, and mixed between
a cut, there should be a cut, there won't be
a cut, there'll be no cut at all. Former finance
Minister Stephen Joyce's with us.

Speaker 2 (00:16):
Very good morning to you morning, Why how are you
so very well?

Speaker 1 (00:20):
Two part question? What should he do? What will he do?

Speaker 2 (00:24):
Okay? What should he do? Well? The question is kind
of do it this way? Two things. One is he'll
be worried about on the one side, non tradable inflation
and potentially having to backtrack later, So that's the sort
of hawkish approach. On the other side, all the dials
are looking at a pretty flat economy, if not further declining.

(00:48):
You've got a lot of stuff around the country of
businesses really struggling, and you've got this energy thing coming
in now, which is going to have a significant impact
on economic activity in the second half of the year,
not perhaps broadly across the economy, but in particular areas
of the country like Taranhaki, and so yeah, there's the

(01:10):
two things he and the committee are weighing up. My
personal view is that we are there. I e. It's
now time to make a cut, but I'm not convinced
he will.

Speaker 1 (01:22):
Okay, will he run some commentary that gives a very
very clear indication that next year's business is now this
year's business and he'll be going before Christmas.

Speaker 2 (01:32):
I think what will happen is he'll either do a
cut and be hawkish. He is twenty five, he's point
two five, but you know things are still on a
n if edge out there and don't expect anymore necessarily
this side of Christmas. Or he'll go the other way
and say, well, we're not doing anything yet, but you
know things are coming under control that we would expect
to do. And I think that in practice the two

(01:54):
things would be the same, right, because it's sentiment and
the presence or otherwise of a point two five cup.
And I think he's going to try, you know, whichever
way he goes on that, you know, the ultimate outcome
in terms of interest rate track, I don't think will
be that much difference in practice.

Speaker 1 (02:12):
Is this a balls up?

Speaker 2 (02:16):
I think? Well, I think it's trying to fix the
balls up that that was there a couple of years ago.
Absolutely not unique to the New Zealand Reserve Bank, by
the way, but I think the world central banks got
together and talked too much and ballsed up the second
half of the COVID response. Absolutely, and that's what we're
paying for it.

Speaker 1 (02:34):
A little bit of commentary yesterday suggesting this Monetary committee
doesn't help what we need of votes? Would you agree
with that or not?

Speaker 2 (02:41):
I think you know, we're getting into the us of
how they talk around the table. He could have votes,
but I don't think in practice will make much difference.
It's a small committee.

Speaker 1 (02:53):
Okay, if he goes today, does he not have to
go again and again? Isn't that the theory that once
you start, you've said it done, we've done enough, Off
we go, as opposed to, well, I'll do some now
and I might come back another day. That doesn't look right,
does it.

Speaker 2 (03:07):
Well, he's got he's got to worry about two things.
On the on the on the potential for resurgeon inflation,
this non tradeable inflation, which basically comes back a lot
to wage rates. And he'll be worried about igniting interest
and increased wages. When I say increase wages, so that's

(03:27):
inflationary increase rather than a productivity increase. He and he'll
be worried about the housing market. So you kiwis are
great at buying houses. We've been really quiet for the
last two years, last year in a bit, And and
he will be worried that by say all right, no
we're away, let's rush out and buy some houses off
each other and push up house prices and feel good

(03:49):
and start spending money again and go too far. So
I think that's why I think he'll be if he
even does a cut. If they do a cut today,
I think they'll still be quite hawkish because they will
be worried about people just saying, oh well, it's all
over now, we just go back to what we're doing before.

Speaker 1 (04:05):
Exactly Jesus. Interesting is that, Stephen. Appreciate your time as always,
Former Finance Minister Stephen Joyce. 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.