Michael Reddell: Former Reserve Bank Economist ahead of the OCR announcement

A former Reserve Bank economist says there's a case for the Reserve Bank cutting the Official Cash Rate by 75 basis points.  

The Reserve Bank will release its latest decision today.  

It's widely expected to cut the rate by 50-basis points from 4.75% to 4.25%.  

Former reserve bank economist Michael Reddell told Mike Hosking the Reserve Bank's view of an OCR of 2.5-3% as being neutral is the best guess.  

He says we genuinely won't know until after we've got there and seen the inflationary consequences, but he thinks we will be at that figure by next August. 

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Episode Transcript

Speaker 1 (00:00):
Here we go for the final time this year back Likecally,
of course oc Arcata is coming most likely fifty points,
but the commentary and the monetary policy statements, you're real gold.
Of course, Former Reserve Bank economist Michael Redel's back with us. Michael,
very good morning to you, Mike.

Speaker 2 (00:13):
Fifty oh probably, but if they went seventy five, it
certainly wouldn't surprise me. I think it's a reasonable case
and making larger to that good.

Speaker 1 (00:22):
I'm glad somebody else is saying that, apart from Greg Smith.
At the moment, what's neutral to you? And how quickly
do we get there?

Speaker 2 (00:29):
I mean, I think the Reserve banks fewer things somewhere
three two and a half and three is probably the
best guess. At the moment, we won't know. We genuinely
won't go in class we've got there and seeing what
the inflationary consequences are. But you know, if that's the
best guess of the number, I think we'll be there
by July August next year.

Speaker 1 (00:47):
Do do you have any weight on this? We take
a very long summer recess off and this is probably
not a good thing for the Reserve Bank. And yes
they can hold an emergency meeting, but they don't, et cetera.
Is there anything in that or not.

Speaker 2 (01:01):
I think at the margin it might influence things a little.
I mean, it's a bad choice on their part. They
should have more even the space their meetings through the year.
But much the biggest influence will just be that inflection
is turning now decisively, coming down even the sort of
core inflectionment measures that don't get so much attention, and
I think the Bank will be drawing attention to that
themselves today whether they go fifty or seventy five. And

(01:22):
so the fact that they're not coming back till February
may just make them a little more willing to make
a bigger call.

Speaker 1 (01:29):
Is there any disconnect that you're seeing in the economy?
Q four for some anyway is not looking like maybe
some thought it would once the cuts started. In other words,
the fizz isn't there? Is that a problem?

Speaker 2 (01:41):
I mean, lags are longer than that, So you wouldn't
expect a drop from the ocr to have made observable
difference to actually etonolic developments that quickly. Yes, it will
come through in the confidence measures, and some of them
have been a bit stronger, others aren't you Purchasing managers
and DEXes, which are really quite important actually serving terms
about what they're doing are still very very weak. But

(02:03):
again it's not surprising. Rates were high for a long time.
Legs take a long time to work. We're still going
to see more fiscal consolidation next year, so life's not
going to be easy for anyone in the economy.

Speaker 1 (02:14):
Proberbly Well, I was going to say, one of the
bank reports I read the other day said one percent
growth next year? Is that what you see?

Speaker 2 (02:18):
Ish? Well? I mean, it's quite plausible. There's always a
big margin to there there and you know what happens
in the rest of the world. But yeah, any recovery
looks like pretty gretual.

Speaker 1 (02:27):
And how would you describe that? Is that a landing
of softish nature, a crash, a what is it?

Speaker 2 (02:33):
But I don't think it's either of those. It's sort
of mid range. You know, we've been very wik economics
from how two three years. This causses on the unemployment
rate as it goes to five and a half percent.
Obviously that's way better than some of the peaks we've
had in the past. It's still tough for job seekers,
it's a genuine recession, all right.

Speaker 1 (02:50):
I always appreciate your expertise, Michael Roddell, former Reserve Bank economist.

Speaker 2 (02:54):
Of course.

Speaker 1 (02:54):
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