Steven Joyce: Former Finance Minister on inflation and interest rates decreasing

The light at the end of the economic tunnel could be drawing nearer. 

Inflation has dipped to a 3-year low, with the Consumer Price Index rising only 0.4% in the June quarter. 

Banks are taking this as a positive sign, with ANZ and Westpac both cutting mortgage rates within the last week. 

Former Finance Minister Steven Joyce told Mike Hosking that a rate cut could be expected soon. 

He said that the Reserve Bank will be wary of going too soon and unleashing animal spirits in the housing market, but there doesn’t seem to be much in the way of that at the moment.  

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Episode Transcript

Speaker 1 (00:00):
So what do we make of the CPI number? Inflation
weather inflation is now trending towards a level whereby the
Reserve Bank might have to cut and spark and a
little bit of hope, maybe some optimism back into the economy.
Zero point four percent for the three months to June
was what we got annualized. That's three point three, which
was down from four. And now the banks are aligned
and thinking that the cuts are going to come this year,
not next form of finance. Minister Stephen Joyce is with

(00:21):
this very good morning to you, by the way, to
see more comments which I'm sure you're up on. You
said yesterday we need relief. It's about time relief and
then we get the independence of the Reserve Bank, et cetera.
Is that politics or is that good sound the economic advice?

Speaker 2 (00:33):
Do you reckon? Well? I think in this case probably
a little bit of both. I think we do need relief.
I think the Reserve Bank won't give the business sector
as much as at once and believes it needs, but
it will start moving fairly.

Speaker 1 (00:49):
So I think the non tradable at five point four
it's still stuck as a stuck thing, despite the fact
it came down from five point eight. How much can
they look through or see through this stuff as it
being a real problem.

Speaker 2 (01:02):
Well, it is the most important problem, if you like,
if you look across the data, is a non tradable
nice sort of go straight to that and see, Okay,
what are we doing at was point nine for the quarter,
still a bit high, but trending in the right direction.
And I understand it was a change in approach to
something like road user charges or something which made it

(01:23):
a bit noisier then than otherwise would have been according
to the A and Z. Anyway, so it's probably it's
definitely trending down. Is it down far enough? This is
where I think the bank needs to look beyond the
beyond the data and actually take a very close look
at what's happening around particularly regional New Zealand, but also

(01:44):
in Awkland. And I think there's a real risk of overshooting.
I think they know that. But you know, the question
we're now talking about is do we get one cut
in now September, October, November probable? Okay.

Speaker 1 (01:59):
So it's interesting to hear because the other day was
key when they said, you know, all of a sudden
they changed take didn't they. So that was that the moment.
You think they got it?

Speaker 2 (02:09):
Yeah, I think they now do get it. I mean, look,
they'll be worried sure of going too soon and unleashing
animal spirits in the housing market, for example, but it
doesn't seem to be much in the way of animal
spirits in the housing market at the moment. And I
think what will probably happen is you'll get one cut earlier,

(02:30):
maybe than we were expecting up until yesterday, and then
I suspect they might hold again to see the next
round of data, because the next round of data comes
in what late October? Does that go against nless something
else happens, right?

Speaker 1 (02:45):
Does that they go against orthodoxy in the sense that
you don't cut once in hold, you cut, and then
you're cut because you're confident you've done your job.

Speaker 2 (02:54):
Well, yeah, ideally that's the textbook. But this is still
you know, my point is they're still on a ninth edge, right,
So they they you know, they see all the data
and it's just just about there. And then they look
the other side and they look at the real economy,
and the real economy is really struggling, and it's the

(03:14):
real risk that they overshoot. So that's why I think
they might do something. I mean, you know, what do
I know? But I think they might do start and
then and then hold because it suits the cycle as well,
because they they have they yeah when the data, and
the data isn't available to the end of Octagers, so
what do they do to their way to the end

(03:34):
of October and then do something in November, which means
they're effectively doing one and holding anyway. So I suspect
we're now debating a first cut in October November. I
don't think we'll see a point five this year, that's
my view. But what we'll do is get a downard track.
It won't be enough on its own, but it might
give some people some hope, as it should. But we're

(03:55):
also the other thing to watch MIC is what's happening
and the rest of the economy, and I think people
want to keep it SI on things like the global
dairy auction, for example, and it's now been down three times.
They'll be watching that closely because that if that keeps dropping,
then they might feel the need to go a little
bit further sooner. Because it's no doubt about it that

(04:16):
the rural economy is in pretty tough shape and the
only thing that's keeping it going at the moment as
dairy prices, so you don't want to see that fall
over and then you're too late cutting exactly.

Speaker 1 (04:26):
Appreciate your expertise Stephen Joyce, former Finance Minister, and answer
to the question what does he know? The answers he
knows a lot and it's why to keep getting him
on the program. For more from The Mic Asking Breakfast,
listen live to news talks it'd be from six am weekdays,
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