August 14, 2024 • 8 mins
Reserve Bank Governor Adrian Orr is defending his change of tune on the Official Cash Rate.
He's cut the OCR to 5.25%.
Some economists are criticising the suddenness of the change of direction, with Brad Olsen calling on the central bank to take accountability for radically changing its forecast without a radical change in circumstances.
But Orr told Mike Hosking the situation has changed since his last Monetary Policy Statement, three months ago.
He says plenty of time and information has changed since May, and the Reserve Bank has communicated that in its Monetary Policy Review in July.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Almost out of nowhere came Adrian Or and his monetary
committee and told us all the stuff he said last
time seemed to have changed and the cuts that were
coming next year are coming now. So twenty five basis points.
It was the governor adrianall's with us, very good morning,
good morning. Help us out with some of the people
who don't quite understand what you've done. Brad Olsen's biggest
flip flop of all time. I think one other economist
said you'll get a sprained ankle doing the pivot. Explain
(00:22):
it to them.
Speaker 2 (00:24):
I can say that business attire was worn throughout the
entire production of this projection. So I think we're okay
on our footwear. With what have we done. We've said
we are now far more confident as a monetary policy
committee that inflation, inflation expectations and price stting behaviors are
(00:48):
now consistent with us being able to ease off on
the monetary restraint. And that's what we did yesterday. We
provided a profile and we cut official care fright by
our basis points.
Speaker 1 (01:00):
Last time we heard from you in May, you weren't
cutting till next year. Yesterday you did. That's a dramatic backdown.
Speaker 2 (01:09):
Well, no, I think plenty of time and plenty of
information has happened since May, and we've also communicated that
as well. You know, we had a July monetary policy
statement where we quite clearly showed our level of growing
level of confidence that the monetary policy is working, growing
(01:30):
concern that the output is falling quicker than necessary, and
so we moved in August.
Speaker 1 (01:39):
Is May to July. When you talk about your growing confidence,
is that actually crashing the economy and you went too
hard originally and you suddenly had to help the economy
out in the way that most of the retail economists
were telling you should do.
Speaker 2 (01:51):
Anyway, Well, I doubt the latter say there was a
view for every economist something slightly different. No, we focused
directly on inflation. It's and so in May, pricing expectations,
inflation expectations, actual inflation were all inconsistent, far too high
(02:15):
for us to have the confidence to begin to cut
rates there. That's why we had a whole path. But
we did warn about the risks that you know, these
this inflation could be more or less sticky, I don't know,
and that output could be more volatile and since since May,
we've we've seen those risks manifest in a good way.
(02:37):
You know, price setting behavior has shifted dramatically, you look
across all surveys, all activity. So so that's great.
Speaker 1 (02:44):
Here's what people can't understand about. Well, first of all,
let me ask you us to get this other way.
Was a hold the possibility yesterday?
Speaker 2 (02:52):
No? No, it was a consensus for a cut, and
then we discussed about how much, you know, how how
far is neutral from where we are, and what kind
of pace would we think we were getting back from
a period of restraint.
Speaker 1 (03:07):
All right, here's the other thing that people underppear to understand.
Inflation is not in the zero to three percent band? Correct,
right here, right now.
Speaker 2 (03:15):
The most recent measured CPN inflation is for the June quarter,
and no, it's at three point three percent exactly before.
Speaker 1 (03:25):
So you've seen, or appear to have gone from the
bloke who needs to see it to a bloke who
thinks we'll probably get there anywhere and is prepared to
take the risk.
Speaker 2 (03:34):
We are very confident around, you know, because we can't
drive monitary policy through the rear vision mirror, and so
we have to have and that's kind of what you do.
Speaker 1 (03:43):
Isn't it that's and isn't that exactly the role?
Speaker 2 (03:46):
The document that you're explaining to your listeners has called
out monetary policy statement, and if you go on and
look at that directly, you'll see forward projections and our
activities based on what we think we need to do
to keep inflation in the band. Now, nothing we do
today is going to affect today's inflation, so we're always
(04:08):
looking forward. What have we sitting here? We're seeing more
spare capacity of the economy taking out some of the
inflation pressure, and we're seeing global pricing falling, and we're
seeing business pricing behavior has changed dramatically in New Zonald
all for the positive or consistent with one three percent?
Speaker 1 (04:29):
I get that, But in looking at your projections as
I am right here right now, your projection of OCR
was five point six percent broadly speaking, and this is
the mystery for people. Broadly speaking, your projections are correct.
You've projected the economy correctly, and based on that, you've
gone and because of this, we're not cutting till next
year all of a sudden, based on the same correct
(04:50):
projections you are cutting.
Speaker 2 (04:52):
Can I say it's not all of a sudden talking
about five months ago, and we have actually been monitoring
and altering policy since then. By the way, the whole
of financial market pricing seems to have been able to
read the document and read the signals and see what
we're doing.
Speaker 1 (05:10):
They haven't. I don't think they have. They've seen the
real economy and they've seen it. They've seen it's broken.
But that the economist says of yesterday, we're going, look,
we need to cut, but we don't think he will
because of what he said previously.
Speaker 2 (05:26):
Well, you know, I would just implore people to go
and have a look at our July Monetary policy statement
and read it. I apologize that there were no pictures
for some of these people, a forward projection picture, but
there are lots of words that explain exactly the uncertainties,
the balance for us and our likely next move. And
that's all we have followed through on. So you can
(05:48):
go directly to the documents.
Speaker 1 (05:50):
Did you say, all right for a luddite like me,
did you say, I've got the may one in front
of me. But did you say in July specifically, like
Powell is saying, like the Central Bank in Europe said,
we will be cutting in July, we will be cutting
in September, will be cutting in June. Did you say
that specifically or not.
Speaker 2 (06:09):
I did not say that in July, but I've said
that yesterday for August. What did we say in July
that I had it sitting right in front of me,
But basically we said, inflation pressures are easing, we will
be able to temper monetary restraint consistent with that.
Speaker 1 (06:33):
Easy right, but not in July. So every other reserve
bank governor or central bank governor around the world gives
us a time. What I'm talking about is.
Speaker 2 (06:41):
They don't say things like that said September. The market
has picked fifteen of Pal's next two moves over the
last twelve months utter false.
Speaker 1 (06:51):
What the guard said June and went in June.
Speaker 2 (06:56):
The Guard said June, that says great, and they probably
said that quite there June. So so no, people, you know.
Speaker 1 (07:03):
We're in August.
Speaker 2 (07:04):
We were in July.
Speaker 1 (07:05):
You didn't say August, and you went in August.
Speaker 2 (07:09):
Because we didn't know it was going to come. In August,
we were saying we are growing on.
Speaker 1 (07:13):
You just said your day, and so in July you said,
you know you did.
Speaker 2 (07:17):
I just I said, we provided a Ford guidance that
inflation pressure are using and we will be able to
temper monetary restraint consistent with that.
Speaker 1 (07:26):
And that's that's not in your mind as well, and.
Speaker 2 (07:30):
The market and all people who read that thought, Yes,
game on for a detract cut August. That end right?
Speaker 1 (07:38):
And so does that go back to the bluffing conversation
that you denied yesterday? In other words, you were freaked
out that everyone in the retail market priced it all
in already, so you didn't want to go, We're going
in August, and so hence the surprise yesterday.
Speaker 2 (07:50):
No, No, that's a great story of but wrong. What
we said in May is we are needing to remain
with the monetary restraint based on the risks we see
in front of us at that point. By July those
risks had the balance, it changed and by August we
grew confidence to be able to cut. Remember back in May,
inflation north of four percent, inflation expectations, pricing behaviors all
(08:14):
at very high levels. Not an environment to boldly rush
in to cutting intrastrates.
Speaker 1 (08:22):
So nothing to apologize for, nothing to see here as planned. Yes,
appreciate your time, Adrian or the Reserve Bank government
Speaker 2 (08:32):
For more from the mic Asking Breakfast, listen live to
news talks there'd be from six am weekdays, or follow
the podcast on iHeartRadio
Almost out of nowhere came Adrian Or and his monetary
committee and told us all the stuff he said last
time seemed to have changed and the cuts that were
coming next year are coming now. So twenty five basis points.
It was the governor adrianall's with us, very good morning,
good morning. Help us out with some of the people
who don't quite understand what you've done. Brad Olsen's biggest
flip flop of all time. I think one other economist
said you'll get a sprained ankle doing the pivot. Explain
(00:22):
it to them.
Speaker 2 (00:24):
I can say that business attire was worn throughout the
entire production of this projection. So I think we're okay
on our footwear. With what have we done. We've said
we are now far more confident as a monetary policy
committee that inflation, inflation expectations and price stting behaviors are
(00:48):
now consistent with us being able to ease off on
the monetary restraint. And that's what we did yesterday. We
provided a profile and we cut official care fright by
our basis points.
Speaker 1 (01:00):
Last time we heard from you in May, you weren't
cutting till next year. Yesterday you did. That's a dramatic backdown.
Speaker 2 (01:09):
Well, no, I think plenty of time and plenty of
information has happened since May, and we've also communicated that
as well. You know, we had a July monetary policy
statement where we quite clearly showed our level of growing
level of confidence that the monetary policy is working, growing
(01:30):
concern that the output is falling quicker than necessary, and
so we moved in August.
Speaker 1 (01:39):
Is May to July. When you talk about your growing confidence,
is that actually crashing the economy and you went too
hard originally and you suddenly had to help the economy
out in the way that most of the retail economists
were telling you should do.
Speaker 2 (01:51):
Anyway, Well, I doubt the latter say there was a
view for every economist something slightly different. No, we focused
directly on inflation. It's and so in May, pricing expectations,
inflation expectations, actual inflation were all inconsistent, far too high
(02:15):
for us to have the confidence to begin to cut
rates there. That's why we had a whole path. But
we did warn about the risks that you know, these
this inflation could be more or less sticky, I don't know,
and that output could be more volatile and since since May,
we've we've seen those risks manifest in a good way.
(02:37):
You know, price setting behavior has shifted dramatically, you look
across all surveys, all activity. So so that's great.
Speaker 1 (02:44):
Here's what people can't understand about. Well, first of all,
let me ask you us to get this other way.
Was a hold the possibility yesterday?
Speaker 2 (02:52):
No? No, it was a consensus for a cut, and
then we discussed about how much, you know, how how
far is neutral from where we are, and what kind
of pace would we think we were getting back from
a period of restraint.
Speaker 1 (03:07):
All right, here's the other thing that people underppear to understand.
Inflation is not in the zero to three percent band? Correct,
right here, right now.
Speaker 2 (03:15):
The most recent measured CPN inflation is for the June quarter,
and no, it's at three point three percent exactly before.
Speaker 1 (03:25):
So you've seen, or appear to have gone from the
bloke who needs to see it to a bloke who
thinks we'll probably get there anywhere and is prepared to
take the risk.
Speaker 2 (03:34):
We are very confident around, you know, because we can't
drive monitary policy through the rear vision mirror, and so
we have to have and that's kind of what you do.
Speaker 1 (03:43):
Isn't it that's and isn't that exactly the role?
Speaker 2 (03:46):
The document that you're explaining to your listeners has called
out monetary policy statement, and if you go on and
look at that directly, you'll see forward projections and our
activities based on what we think we need to do
to keep inflation in the band. Now, nothing we do
today is going to affect today's inflation, so we're always
(04:08):
looking forward. What have we sitting here? We're seeing more
spare capacity of the economy taking out some of the
inflation pressure, and we're seeing global pricing falling, and we're
seeing business pricing behavior has changed dramatically in New Zonald
all for the positive or consistent with one three percent?
Speaker 1 (04:29):
I get that, But in looking at your projections as
I am right here right now, your projection of OCR
was five point six percent broadly speaking, and this is
the mystery for people. Broadly speaking, your projections are correct.
You've projected the economy correctly, and based on that, you've
gone and because of this, we're not cutting till next
year all of a sudden, based on the same correct
(04:50):
projections you are cutting.
Speaker 2 (04:52):
Can I say it's not all of a sudden talking
about five months ago, and we have actually been monitoring
and altering policy since then. By the way, the whole
of financial market pricing seems to have been able to
read the document and read the signals and see what
we're doing.
Speaker 1 (05:10):
They haven't. I don't think they have. They've seen the
real economy and they've seen it. They've seen it's broken.
But that the economist says of yesterday, we're going, look,
we need to cut, but we don't think he will
because of what he said previously.
Speaker 2 (05:26):
Well, you know, I would just implore people to go
and have a look at our July Monetary policy statement
and read it. I apologize that there were no pictures
for some of these people, a forward projection picture, but
there are lots of words that explain exactly the uncertainties,
the balance for us and our likely next move. And
that's all we have followed through on. So you can
(05:48):
go directly to the documents.
Speaker 1 (05:50):
Did you say, all right for a luddite like me,
did you say, I've got the may one in front
of me. But did you say in July specifically, like
Powell is saying, like the Central Bank in Europe said,
we will be cutting in July, we will be cutting
in September, will be cutting in June. Did you say
that specifically or not.
Speaker 2 (06:09):
I did not say that in July, but I've said
that yesterday for August. What did we say in July
that I had it sitting right in front of me,
But basically we said, inflation pressures are easing, we will
be able to temper monetary restraint consistent with that.
Speaker 1 (06:33):
Easy right, but not in July. So every other reserve
bank governor or central bank governor around the world gives
us a time. What I'm talking about is.
Speaker 2 (06:41):
They don't say things like that said September. The market
has picked fifteen of Pal's next two moves over the
last twelve months utter false.
Speaker 1 (06:51):
What the guard said June and went in June.
Speaker 2 (06:56):
The Guard said June, that says great, and they probably
said that quite there June. So so no, people, you know.
Speaker 1 (07:03):
We're in August.
Speaker 2 (07:04):
We were in July.
Speaker 1 (07:05):
You didn't say August, and you went in August.
Speaker 2 (07:09):
Because we didn't know it was going to come. In August,
we were saying we are growing on.
Speaker 1 (07:13):
You just said your day, and so in July you said,
you know you did.
Speaker 2 (07:17):
I just I said, we provided a Ford guidance that
inflation pressure are using and we will be able to
temper monetary restraint consistent with that.
Speaker 1 (07:26):
And that's that's not in your mind as well, and.
Speaker 2 (07:30):
The market and all people who read that thought, Yes,
game on for a detract cut August. That end right?
Speaker 1 (07:38):
And so does that go back to the bluffing conversation
that you denied yesterday? In other words, you were freaked
out that everyone in the retail market priced it all
in already, so you didn't want to go, We're going
in August, and so hence the surprise yesterday.
Speaker 2 (07:50):
No, No, that's a great story of but wrong. What
we said in May is we are needing to remain
with the monetary restraint based on the risks we see
in front of us at that point. By July those
risks had the balance, it changed and by August we
grew confidence to be able to cut. Remember back in May,
inflation north of four percent, inflation expectations, pricing behaviors all
(08:14):
at very high levels. Not an environment to boldly rush
in to cutting intrastrates.
Speaker 1 (08:22):
So nothing to apologize for, nothing to see here as planned. Yes,
appreciate your time, Adrian or the Reserve Bank government
Speaker 2 (08:32):
For more from the mic Asking Breakfast, listen live to
news talks there'd be from six am weekdays, or follow
the podcast on iHeartRadio
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