February 19, 2025 • 8 mins
Pressure is mounting on banks to pass OCR cuts onto their customers.
The Reserve Bank's signalling yesterday's double cut to the cash rate will be followed by at least two more single cuts.
All major banks have started dropping their rates.
But Governor Adrian Orr told Mike Hosking they need to go further.
He says they need to be doing better, looking at their own margins, and chasing and competing for customers much more vigorously.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
So if I heard Adrian or correctly yesterday, the fifty
(00:02):
points will come with another couple of cuts shortly, and
at that point, all things being equal, we are in
neutral territory. The drama is over. Adrianare's with us? Very
good morning, am I? Worldwide coverage of what you did
yesterday continuously and consistently use the word slashed. New Zealand
has slashed. Does slashed imply drama or not?
Speaker 2 (00:23):
It does imply drama, but it's probably misnamed for us.
It was the financial markets totally anticipated what we did,
and I think we barely left a rule. If it
was a hot dive, we would have got a ten.
So I'll sure what they're talking about.
Speaker 1 (00:37):
The banks have passed on some but not all. Is
that acceptable or not?
Speaker 2 (00:44):
The banks need to do better. They need to look
at their own margins and chase and compete with or
customers much more vigorously. Their funding costs are being challenged
because you know, the official cash rate is only one
of the variables that go into what they have to
(01:05):
pay when they're borrowing money to aunt Land. But the
margin is also sitting there at a very healthy level.
So one would hope that when the competition when people
come back to the market, which they're doing in drums
and drabs. Now, competition is alive.
Speaker 1 (01:24):
Those profit margins you talked about, We saw a couple
of results in the last week or so and I
always compare the Australian number to the New Zealand number.
The New Zealand numbers always higher than the Australian number.
Why hasn't that been addressed by the government or you
or somebody somewhere so we get a better deal?
Speaker 2 (01:40):
Yeah, I mean, spot on. The biggest challenge is, you know,
income streams don't disrupt themselves, but they need disrupting. We're
doing a lot of work here at the bank. While
whilst you know, we always get blamed for capital or
you know, prudential things for the level of interest rates,
we're talking being profit margins here, and you know, the
(02:02):
disruption type things we're looking at doing is central Bank
digital currencies, open access to our paiment and settlement systems,
all of the plumbing the background, allowing people to compete
in the simple transaction world at a cost. I mean
some countries, you know, we would be multiples more expensive
(02:25):
than many countries just to do basic transactional.
Speaker 1 (02:28):
Banking ultimately whose doorsteps as on the governments.
Speaker 2 (02:35):
It's you know, and the government's pretty limited. I mean,
it's competition. You know, you've seen how hard it is
to penetrate. I think I think it's technology implementation. You know,
I could rattle off a list of things we're doing
which I think would fundamentally change the competitive landscape. Government
(02:56):
has to buy into that.
Speaker 1 (03:00):
Argue they are are they not? Because I mean Nichola
Willis is all over I mean, you plainly yak about
doing something about this. I just worry that nothing's happening.
Speaker 2 (03:07):
I kind of think, you know, there's three forms of efficiency.
The first one is cost efficiency, and so you know,
just just trying to do the same thing cheaper and
cheaper will get you some way only but it still
needs to be passed on. The other one is allocative efficiency,
you know, lending to the right people and at the
right time. But the real one that's missing amongst all
this is dynamic efficiency, i e. You know, new technology,
(03:31):
new ways of doing the same thing. I can quote
several countries, Brazil, in the Malaysia, Singapore where the technology
is at the leading edge. We are far behind it
and trying to get people to focus on that I
think will be the game changer. So well, yeah, it's
(03:52):
all there. We don't have to reinvent it.
Speaker 1 (03:53):
No good luck with it. The most depressing part about
your press conference yesterday was when you started talking about
fair value. So the currency gets to fair value. If
fair value is fifty seven US and forty five P
what's that tell you about New Zealand economy in the country.
Speaker 2 (04:07):
Well, that's that's right, So you know, it's you know,
don't get too worried about comparing nominals, but fair value
is something where you know, the price of beer in
one country equals the price of beer in another once
you've a Jane adjusted for the exchange rate, and so
it's a nominal against nominal type thing. You know. The
most depressing thing amongst all of this is that we're
talking about economic growth picking up. But you know that's
(04:29):
to two and a half percent, so you know that
that's threshing, threshing the debts and as fast as we can.
You know, we need to upgrade the vehicle.
Speaker 1 (04:38):
You in your class. So yesterday it was Reno. You
only get a good Reno on the third recall, are
you like a car expert. Is it true you only
get a good Reno on the third recall or you're
just making that up?
Speaker 2 (04:48):
I loved that quote. I lived in transfer, isn't that
was the advice I received. The best vehicle to ever
buy is the Reno after its third recall.
Speaker 1 (04:59):
So that this comes to the business of productivity, which
I don't know that we're ever going to tackle properly
because we understand on a piece of paper what productivity
might be, yet we're it's useless at it. What fundamentally
needs to change For that to.
Speaker 2 (05:14):
Change, we need investment in technology and people, capability and competence,
and we tend to just do the opposite. Were just
like find doing the same thing slightly cheaper or just
applying more people. So generally the economic growth has seen
over decades now has been about more people coming into
(05:36):
the country, so more inputs, more the same things, slightly better.
It's investment in technology and capability. The government needs to
be courageous and be part of that investment. So infrastructure enabling,
enabling or allowing and enabling investment to occur.
Speaker 1 (05:55):
Okay, I know the different scenarios. I get it, But
we're seeing you're seeing some inflation come in this country
this year. Britain's seeing it, America is seeing it. They've
got more of a backstop and being able to deal
with it. Do we face if you're a bit wrong,
stagflation in other words, more inflation, not a lot of growth,
and we're running out of tricks.
Speaker 2 (06:17):
Yes, you know under that scenario, if we get significant
global inflation come back again, we're going to wear it.
Monetary policy will do its job. It's not going to
turn into domestic inflation. We will be targeting one to
three percent. Inflation has come down. We're feeling very confident
that it is contained, but it's around a low potential
(06:41):
growth rate.
Speaker 1 (06:42):
So a lot of people texted me, you know, my
feelings about what you've been doing over the last couple
of years, But a lot of people text me about
the number of people who have left the country and
you talk about immigration, do you carry any responsibility do
you think for the number of people who are packed
up and left Because we're buggered and you back monetary policy.
Speaker 2 (07:05):
We focus on low and stable inflation. That's all we
can provide. Monetary policy is neutral in the long run
on the effect on growth or where people choose to
live or not. What we can do is issue notes
and coins, and we want to make the purchasing value
of that broadly stable with the New Zealand. That is
our job.
Speaker 1 (07:25):
By the time I interview we've achieved it, sure, exactly.
So by the time I interview you next, which is
in a couple of months, another couple of twenty five's
a game, We're about done, aren't we. It gets boring
after that in theory.
Speaker 2 (07:37):
Yeah, which is great. You know, central bank should be boring.
That's where they chose me. You've got we think a
neutral interest rate is around three three and a half percent.
We're not too far off it now. So why is
that good news? That means we'll have stable nominal interest rates,
will have low and stable inflation, will have employment growing,
(08:00):
will have GDP growth, you know, will it be will
it be big long term strong growth and will It's
only going to be a functional of how we are
all right.
Speaker 1 (08:12):
Appreciate your time as always, Adrian, all the Reserve Bank Governance.
Speaker 2 (08:15):
For more from the My Asking Breakfast, listen live to
news talks it'd be from six am weekdays, or follow
the podcast on iHeartRadio.
So if I heard Adrian or correctly yesterday, the fifty
(00:02):
points will come with another couple of cuts shortly, and
at that point, all things being equal, we are in
neutral territory. The drama is over. Adrianare's with us? Very
good morning, am I? Worldwide coverage of what you did
yesterday continuously and consistently use the word slashed. New Zealand
has slashed. Does slashed imply drama or not?
Speaker 2 (00:23):
It does imply drama, but it's probably misnamed for us.
It was the financial markets totally anticipated what we did,
and I think we barely left a rule. If it
was a hot dive, we would have got a ten.
So I'll sure what they're talking about.
Speaker 1 (00:37):
The banks have passed on some but not all. Is
that acceptable or not?
Speaker 2 (00:44):
The banks need to do better. They need to look
at their own margins and chase and compete with or
customers much more vigorously. Their funding costs are being challenged
because you know, the official cash rate is only one
of the variables that go into what they have to
(01:05):
pay when they're borrowing money to aunt Land. But the
margin is also sitting there at a very healthy level.
So one would hope that when the competition when people
come back to the market, which they're doing in drums
and drabs. Now, competition is alive.
Speaker 1 (01:24):
Those profit margins you talked about, We saw a couple
of results in the last week or so and I
always compare the Australian number to the New Zealand number.
The New Zealand numbers always higher than the Australian number.
Why hasn't that been addressed by the government or you
or somebody somewhere so we get a better deal?
Speaker 2 (01:40):
Yeah, I mean, spot on. The biggest challenge is, you know,
income streams don't disrupt themselves, but they need disrupting. We're
doing a lot of work here at the bank. While
whilst you know, we always get blamed for capital or
you know, prudential things for the level of interest rates,
we're talking being profit margins here, and you know, the
(02:02):
disruption type things we're looking at doing is central Bank
digital currencies, open access to our paiment and settlement systems,
all of the plumbing the background, allowing people to compete
in the simple transaction world at a cost. I mean
some countries, you know, we would be multiples more expensive
(02:25):
than many countries just to do basic transactional.
Speaker 1 (02:28):
Banking ultimately whose doorsteps as on the governments.
Speaker 2 (02:35):
It's you know, and the government's pretty limited. I mean,
it's competition. You know, you've seen how hard it is
to penetrate. I think I think it's technology implementation. You know,
I could rattle off a list of things we're doing
which I think would fundamentally change the competitive landscape. Government
(02:56):
has to buy into that.
Speaker 1 (03:00):
Argue they are are they not? Because I mean Nichola
Willis is all over I mean, you plainly yak about
doing something about this. I just worry that nothing's happening.
Speaker 2 (03:07):
I kind of think, you know, there's three forms of efficiency.
The first one is cost efficiency, and so you know,
just just trying to do the same thing cheaper and
cheaper will get you some way only but it still
needs to be passed on. The other one is allocative efficiency,
you know, lending to the right people and at the
right time. But the real one that's missing amongst all
this is dynamic efficiency, i e. You know, new technology,
(03:31):
new ways of doing the same thing. I can quote
several countries, Brazil, in the Malaysia, Singapore where the technology
is at the leading edge. We are far behind it
and trying to get people to focus on that I
think will be the game changer. So well, yeah, it's
(03:52):
all there. We don't have to reinvent it.
Speaker 1 (03:53):
No good luck with it. The most depressing part about
your press conference yesterday was when you started talking about
fair value. So the currency gets to fair value. If
fair value is fifty seven US and forty five P
what's that tell you about New Zealand economy in the country.
Speaker 2 (04:07):
Well, that's that's right, So you know, it's you know,
don't get too worried about comparing nominals, but fair value
is something where you know, the price of beer in
one country equals the price of beer in another once
you've a Jane adjusted for the exchange rate, and so
it's a nominal against nominal type thing. You know. The
most depressing thing amongst all of this is that we're
talking about economic growth picking up. But you know that's
(04:29):
to two and a half percent, so you know that
that's threshing, threshing the debts and as fast as we can.
You know, we need to upgrade the vehicle.
Speaker 1 (04:38):
You in your class. So yesterday it was Reno. You
only get a good Reno on the third recall, are
you like a car expert. Is it true you only
get a good Reno on the third recall or you're
just making that up?
Speaker 2 (04:48):
I loved that quote. I lived in transfer, isn't that
was the advice I received. The best vehicle to ever
buy is the Reno after its third recall.
Speaker 1 (04:59):
So that this comes to the business of productivity, which
I don't know that we're ever going to tackle properly
because we understand on a piece of paper what productivity
might be, yet we're it's useless at it. What fundamentally
needs to change For that to.
Speaker 2 (05:14):
Change, we need investment in technology and people, capability and competence,
and we tend to just do the opposite. Were just
like find doing the same thing slightly cheaper or just
applying more people. So generally the economic growth has seen
over decades now has been about more people coming into
(05:36):
the country, so more inputs, more the same things, slightly better.
It's investment in technology and capability. The government needs to
be courageous and be part of that investment. So infrastructure enabling,
enabling or allowing and enabling investment to occur.
Speaker 1 (05:55):
Okay, I know the different scenarios. I get it, But
we're seeing you're seeing some inflation come in this country
this year. Britain's seeing it, America is seeing it. They've
got more of a backstop and being able to deal
with it. Do we face if you're a bit wrong,
stagflation in other words, more inflation, not a lot of growth,
and we're running out of tricks.
Speaker 2 (06:17):
Yes, you know under that scenario, if we get significant
global inflation come back again, we're going to wear it.
Monetary policy will do its job. It's not going to
turn into domestic inflation. We will be targeting one to
three percent. Inflation has come down. We're feeling very confident
that it is contained, but it's around a low potential
(06:41):
growth rate.
Speaker 1 (06:42):
So a lot of people texted me, you know, my
feelings about what you've been doing over the last couple
of years, But a lot of people text me about
the number of people who have left the country and
you talk about immigration, do you carry any responsibility do
you think for the number of people who are packed
up and left Because we're buggered and you back monetary policy.
Speaker 2 (07:05):
We focus on low and stable inflation. That's all we
can provide. Monetary policy is neutral in the long run
on the effect on growth or where people choose to
live or not. What we can do is issue notes
and coins, and we want to make the purchasing value
of that broadly stable with the New Zealand. That is
our job.
Speaker 1 (07:25):
By the time I interview we've achieved it, sure, exactly.
So by the time I interview you next, which is
in a couple of months, another couple of twenty five's
a game, We're about done, aren't we. It gets boring
after that in theory.
Speaker 2 (07:37):
Yeah, which is great. You know, central bank should be boring.
That's where they chose me. You've got we think a
neutral interest rate is around three three and a half percent.
We're not too far off it now. So why is
that good news? That means we'll have stable nominal interest rates,
will have low and stable inflation, will have employment growing,
(08:00):
will have GDP growth, you know, will it be will
it be big long term strong growth and will It's
only going to be a functional of how we are
all right.
Speaker 1 (08:12):
Appreciate your time as always, Adrian, all the Reserve Bank Governance.
Speaker 2 (08:15):
For more from the My Asking Breakfast, listen live to
news talks it'd be from six am weekdays, or follow
the podcast on iHeartRadio.
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