Michael Reddell: Former Reserve Bank Economist ahead of today's OCR announcement

The Reserve Bank could still surprise us with this afternoon's Official Cash Rate decision. 

Interest rates have been falling, with markets pricing in a 50 basis point cut. 

But former Reserve Bank economist Michael Reddell says the central bank may opt for another option, like a 25 basis point cut. 

He told Mike Hosking when he was on the Monetary Policy Committee that makes the OCR decision, they always received advice on what the market and economists were expecting. 

But he says they're never swayed by those decisions, and make their own decisions based on their own forecasts. 

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Episode Transcript

Speaker 1 (00:00):
So here is your reserve bank and underum most economists
want a fifty point cut today. That's a big cut.
That's a cut that might indicate the reserve bank wreck
the economy a little bit much. Last time we heard
from Adria and he was talking twenty five points of course.
So what happens today and what effect does it have?
Former Reserve Bank economist Michael Radell's with us. Michael, morning
to you. If you're on the Monetary Policy Committee and
you hear all the economists so far this week, do

(00:22):
you go all geez, I wonder do are you affected
by that?

Speaker 2 (00:25):
Or not? Really? Well? So maybe conscious of it. I mean,
you know, when I used to sell on the Monitary
Policy Committee, we've got standard advice as to what markets
were expecting, what economists were expecting. I don't think it
ever sort of swaders very much, because ultimately you've been
driven by your own analysis and your own forecast, and
quite a few of those market economists to say, as

(00:46):
I am, that today is the fifty fifty call.

Speaker 1 (00:48):
It's pretty close, pretty close to to see. I've got
Greg Smith, who argues cogently at Debon Funds for seventy
five and you've got enziar at twenty five. That's a
huge gap. How come we've got such divergence.

Speaker 2 (01:02):
Because interest rates are so high relative to what's the
normal levels, So the Reserve Bank thinks to normal and
natural rates about three point eight percent. We're at five
point two five at the moment. So we're going to
get back there and close that gap. The question is
how rapidly, how much? So that it comes back to
the uncertainty that inflation, you know, the inflation others don't
come out for next week. Some people are a lot

(01:22):
more confident about them than others.

Speaker 1 (01:24):
So they would have some good intel in that. Some
suggestion is that it could print in a low two,
which means they've overcooked this, they've squeezed too tight.

Speaker 2 (01:35):
Not necessarily on its own, because what will be affecting
the headline number next week is petrol prices have been
coming down, and as you now, oil prices go all
over the place. They'll be looking at the sort of
core measures, the ones excluding volatile items. So I think
it's more like the core numbers may still be around
three or just under, but still probably heading down, and
it's just a question for them of a how much

(01:56):
can they take from their forecast. Now they won't have
any advance information. And how consistent do they want to
be with what they said in August, because, as you
noted back in August, Asianman's numbers were very clear. Twenty
five month, do I read the dark haven't shifted that
much in the meantime?

Speaker 1 (02:12):
Okay, So if he goes fifty, do we assume automatically
there's another fifty or we can't go that far?

Speaker 2 (02:18):
I don't think so, And I don't think they will
quite have that in their minds either because they don't
do a full set of forecast or one of these reviews.
They do the full forecast only every quarter, and they
do have two bits of crucial information coming out in
the next couple of weeks CPI next week and the
unemployment and wage numbers the first week of November.

Speaker 1 (02:34):
Does it work if he goes fifty today with the
twenty five already and possibly another fifty? Is that material
and things we can see change.

Speaker 2 (02:44):
At that sort of scale one hundred point one hundred
and twenty five points. Yes, that does become material. Macroeconomically,
you're already seeing some business confidence surveys picking up and
I'm pretty sure that some of that is because people
are now expecting that there will be big cuts, so
you know, that's already some of the benefits. But martial
policy works with a way. It takes twelve thirty months.

(03:04):
Current things have been affected by decisions early last year,
so we're not going to see an immediate bounce back
to normal economic editions.

Speaker 1 (03:12):
All right, Always enjoy your expertise. Michael Michaeldell, former Reserve
Bank economists. Just do I work you through it very quickly. Ah,
the major banks, this is your asb's and your Kiwi banks.
They're all arguing fifty points. Some of them are arguing
fifty and fifty. Jared kur at Kuebank argues very strongly
for that Westpact, they say fifty points, B and Z
they're looking at the same sort of numbers. So the
major banks are all on fifty. But then you've got

(03:33):
the A N Z. Sharon Zolner, they penciled fifty, but
they think it's line ball could easily be twenty five.
Then you got your independence, you got your infometrics and
New Zealand economic research. They say twenty five doesn't mean
that they want twenty five doesn't mean they're just saying
that's what we see happening today. So she is an
interesting time and an interesting cause. For more from the

(03:53):
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