Christian Hawkesby: Acting Reserve Bank Governor on the OCR cut, future developments

Don't bank on further cuts to the Official Cash Rate. 

The Reserve Bank's dropped the OCR 25 basis points to 3.25%, and is now forecasting it could reach a low of 2.9% by the end of the year. 

But Governor Christian Hawkesby says further cuts aren't guaranteed. 

He told Mike Hosking they're taking things one step at a time, as they wait to see how global developments affect the economy and inflation. 

Hawkesby says the OCR is now close to "neutral" and the Reserve Bank's next move won't be pre-programmed, it will depend on how things unfold. 

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Episode Transcript

Speaker 1 (00:00):
You reserve. Being governor gave us a lot to think
about yesterday. Yes the predicted cash rate came or the cut,
but where we go is potentially a bit of a
mystery from here on. In Christin Hawksley's with us, good morning, gooday.
You talked a lot about the committee yesterday. How much
of a committee type atmosphere and a range of views
leads to a lack of decisiveness in times of real
trouble and difficulty.

Speaker 2 (00:22):
I think a committee is a very strong and supportive
thing to have in these times. We do need a
dispersion of views around the table. There's a lot going on.
We need to draw on the expertise and judgments of
all six of us around the table. We did come

(00:43):
to a consensus on the set of projections that we
set out, and that's one where the official cash rate
sort of coming down of that and is around three
percent where we had it. Where we had to come
to a vote on was what to do with the
ocean are yesterday and voted in favor five to one

(01:05):
to two lower.

Speaker 1 (01:06):
Indeed, I'll come back to the boat if I have time,
but what I got yesterday was blamnge. You don't know
what's going on. And in a way, I don't blame you.
No one seems to know what's going on, but drawing
up a variety of scenarios anyone can do.

Speaker 2 (01:20):
What we're trying to indicate is that we're in a
different phase now. You know, we had the OCR at
five and a half percent, and we were a long
way north of neutral, which is somewhere between maybe three
and a half and two and a half percent. The
OCR has come down a long way now we're in
that sort of zone of neutral. We're in that zone.

(01:41):
So we're not on a pre programmed path from here.
You know, we can't say to markets, yep, we're definitely
doing this or that next time. We are more feeling
our way. We are more dependent on developments. Things are
very uncertain, but we're in a really good position just
to respond to things from here. And by giving that

(02:01):
signal to markets, you know, that enables them to think
for themselves as well and assess the situation and move
things around.

Speaker 1 (02:11):
See, I'm thinking for myself and what I'm thinking in
the economy. I live and things aren't going well. And
so you alluded to the obvious things like farmers and
dairy and exports and all of that's absolutely brilliant, But
there are large chunks of the economy that are in
dreadful shape. But because one bit's so good, we're kind
of neutralized everything and everything appears okay because inflation is
in the right band, and I'm just wondering if that's

(02:32):
a problem for us overall.

Speaker 2 (02:36):
Absolutely acknowledge that, you know, there are different speeds in
the economy at the momentum. We acknowledge that there's actually
a lot of spare capacity in the economy, and that's
one of the things that gives us confidence that even
though inflation is still bouncing around the top half of
our band, over the medium term, it is likely to

(02:56):
come down closer and settle around two percent because of
that spare capacity. We have lowered interest rates a long way,
and it does take time for that to work its
way through. You know, you kind of see that in
the effect of mortgage rates that people feel they are
going to come down mechanically through the course of this

(03:17):
year as people shift on old fixed rates onto new
fixed rates, and so there's there's a bit still to
come there. In our projections, we have a recovery continuing.
That's partly supported by the lower interest rates that we'll have,
do you, But it's a modest one given the global outlook.

Speaker 1 (03:35):
I was going to say, where is it You're seeing
this recovery park, the farmers and all that stuff that
we obviously get. Where is this recovery and services? Where
is it in downtown Auckland, downtown christ dur to downtown Wellington?
Where is it? Where is it in the jobs?

Speaker 2 (03:49):
It's not, you know, it's this is the art of
economics and forecasting and projections. You have to look into
the future and you know, even when things are modest,
even things when things are reasonably cool, if the conditions
are there for that to start working its way through,
you know, that's what we have to base our decisions on.

(04:12):
We acknowledge that these things take time. Even lowering interest
rates works through many, many different channels at different speeds.
But we have confidence that there will be that recovery,
but it will be a modest one given the global environment.

Speaker 1 (04:28):
Does the dollar worry you because part of the success
of the export, of course, is the anemic dollar of ours.
And you don't want an anemic dollar, do you.

Speaker 2 (04:37):
You know, we take the currency, you know as given
and we just have to work around that. There's a
lot of chat about the decline of the US dollar
and it's not going to be the reserve currency anymore,
and that might mean key we stronger, and that could
be a headwind. You know, we just need to see
how that plays out. I think that's more of a

(04:58):
long term structural thing. Each time we meet, we'll just
look has the exchange rate worked as a shock absorber
like it's supposed to do, and if it hasn't, we'll
have to do something about it.

Speaker 1 (05:10):
Okay, just a really quick explanation for simple people. So
the general conversation was a cut was baked in yesterday,
there's another one coming and maybe another one after that.
That all seemed to change yesterday. Have we been hoodwinked
or have we not seen what's happening? Or are you
just seeing the world differently from the rest of us.

Speaker 2 (05:29):
I think we're getting into the area of fine tuning here.
You know, we've got a.

Speaker 1 (05:35):
Fifty fine tuning Christian fifty points is a lot.

Speaker 2 (05:41):
Oh. What is meaning to say is we've got an
official cash rate at three point twenty five percent. We've
got a central projection that's got it somewhere between two
point nine and three point one over the horizon. You know,
compared to the range of the official cash rate we've
seen over history, that's a reasonably tight. Our main message

(06:02):
is actually around, you know, we're very close to neutral now.
Our next move is not going to be pre programmed.
It's going to be about what we're learning about the future.
Is it unfolds? All right?

Speaker 1 (06:15):
Appreciate your time. New Reserve Bank at least for six months.
Christian Hawksby. For more from the Mic Asking Breakfast, listen
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