August 20, 2025 • 7 mins
The Reserve Bank Governor is defending not going harder with cuts to the Official Cash Rate.
The cash rate has been cut 25 basis points to 3%.
But it's signalling more cuts than it was before, and has revealed two of the six Monetary Policy Committee members actually wanted a bigger cut.
Christian Hawkesby told Mike Hosking he stands by the central bank's decisions.
He says they're focused on their mandate of controlling inflation over the medium term, but the recent slowdown has changed their outlook.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
So to the wonderful world of the Central Bank and
their view of where we're at and what we need
to do economically, twenty five point, can't cash rate it
for while it's down to eventually it's going to be
two and a half. They think four two vote hasn't
happened before. A couple more cuts before Christmas. So Christian
hawksby acting Reserve Bank Governor's back with us. Good morning oday.
What do you say to people like Jared Kerr and
Greg Smith at Devon who have yelled for months now
(00:23):
fifty points, fifty points and fifty points last time you
held in this time it's only twenty five They're right,
you're not. What do you say?
Speaker 2 (00:32):
I say that we're focused on our mandate, which is
achieving our inflation target and focused on those medium term
inflation pressures. And it's really been the economy stalling over
this Q two that's revised down that outlook, and that's
what we're responding to today.
Speaker 1 (00:51):
And then that is part of the problem the Q two.
A lot of people saw it, saw it coming, and
we're yelling and you didn't. How come you didn't see it?
Speaker 2 (01:01):
Well, we saw some of it come through in the
early phase, and in July. We had a meeting in
July and we indicated that there was some signs there
and that we were open to cutting going forward. So
we gave that signal and that bias in July. As
it's gone through since then, there's been even more signs
until we've got more confidence that we can lower rates,
(01:23):
and we can lower them very quickly.
Speaker 1 (01:25):
Yeah, but you should have done that already.
Speaker 2 (01:29):
We just look forward from where we are is all
we can do. We play the ball in front of us.
Speaker 1 (01:34):
But what I'm trying to ascertain here is how is
it that so many people could see what was coming
in Q two? The will felt weird, it felt bad,
the local economy was crap, and we all feel it
livet see it. How come you can't see the same thing.
Speaker 2 (01:51):
Because you know there are risks on either side of
the outlook that risk to growth has come through. There
are risks on the other side around inflation. Headline inflation
getting up around three percent. We've got it at three
percent for Q three, fifty to fifty percent chance it
(02:12):
could go over three. There's a risk that that could
push up inflation expectations and make our job harder. So
for our committee, we revise down our ocr prediction, but
we do actually see balanced risks around that lower path
that we'll put out.
Speaker 1 (02:29):
That inflation how much of it's driven by power, insurance
and rates and how much of that do you look through?
Speaker 2 (02:37):
A good chunk of it is And so core inflation
measures are falling, which is a good sign for US
keeping inflation. An coed it that two percent target out
in the medium term, So we think we can look
through a lot of that rise, that near term rise
(02:57):
that we're seeing, but there is a risk that it
does get embedded. And we've seeing household inflation expectations tick
up and we're watching those very closely.
Speaker 1 (03:07):
But why have they ticked up, Christian? They've ticked up
because I've got my rates bill and my power bill
and my insurance bill, and I just can't work out
what you can't see for next year. Why would a
council who's charging me twelve percent more this year not
charging me another twelve next year because they can it's
cost plus accounting.
Speaker 2 (03:24):
Councils will make their own decisions. We just have to
focus on what, in totality all that means for inflation
pressure in that medium in that medium term.
Speaker 1 (03:35):
Yeah, but if I look at a council's behavior and
I look at a power company's behavior and an insurance
company's behavior, I'm seeing what you see. They're not putting
their prices down. They're driving inflation, and I don't see
that changing. Therefore, that's not changing. Why do you think
it is.
Speaker 2 (03:52):
There's just one part of the equation. We do have
a lot of spare capacity in the economy, and so
that's what that's the driver that we see core inflation
settling more at two percent in that medium term, because
it's just we're not in an environment where all firms
can pass on higher costs, and we're not an environment
(04:15):
where households can bid up wages because we have a
very soft labor market at the moment.
Speaker 1 (04:20):
But isn't that the crux of your problem. The crux
of your problem is what's driving inflation is not productivity.
It's just people sending out bills, and so you've got
your inflation, but you haven't got it with growth. It's
not the growth that's driving the inflation. Hence the traditional
worry you might have.
Speaker 2 (04:38):
So we're focused on cyclical economy. So it's really about
how much slacked there is relative to that potential growth rate,
and so that's what drives us. We've got that medium
term perspective. Productivity and potential growth is really a long
term story. It's about new skills, new technology, and new
(04:59):
ways of work, a new products, new markets. You know,
that's that's out of our control, and even policies to
promote those things are going to take time to flow through,
and we won't see it immediately.
Speaker 1 (05:12):
The fifty percent, I think Karen was talking about it,
the fifty percent that's yet to flow through, as she
termed it, How wedded to that idea, are you?
Speaker 2 (05:21):
Oh? That that's very mechanical, even that that's based on
what we've done today. It's just the fact that we
know that people are who have fixed at those higher
rates just have to wait and bide their time and
to lad the opportunity.
Speaker 1 (05:41):
I didn't work. I didn't work it properical. Yeah, I know,
I get it. It's a mechanical question. I get it.
But when I get my money, when I get the
relief from the fixed interest rate and it comes down
and the insurance bill comes through, I'm no better off. Therefore,
I'm still in a funk. Therefore, the economy is still
not moving.
Speaker 2 (05:55):
And that's why since May we are providing more stimulus
because things have changed. Things have been cooler, households are
feeling like they've got less discretionary income, all of those things,
and that's what prompted the action yesterday, and that's what
prompted the conversation about with it to go fifty.
Speaker 1 (06:16):
Yeah, but they don't feel like they've got it. They
don't have it. It's a statement of fact. They don't
have it because of all of the inflation driven things
I mentioned a moment ago. The difficulty you face, as
far as I can work out, is you haven't done enough.
And now, if panic's too strong a word, you've certainly
woken up to the fact you've got to do more.
You've got at least two before Christmas, and I just
(06:36):
don't know for a fact that people are going to
respond to you because we're in such a funk. It's
the psychology of a recession, isn't it.
Speaker 2 (06:46):
We see risks on both sides. We're already seeing in
the July datus that some pick up and economic activity,
some of those anecdotes are coming through. We've got confidence
that there are drivers of this economy. We've got high
export commodity prices. We've got outside of Wellington and Auckland
(07:09):
the vibers different people feel.
Speaker 1 (07:13):
It's been that way all year. The farmers are booming
and it's brilliant they're booming. But you can't say outside
of Auckland. Auckland is the engine room of the economy.
Speaker 2 (07:23):
It's a large part of the economy, but it's not
all of the economy. If we could, If we could,
we would set interest rates differently for Auckland and Wellington,
but we have to set interest rates for the for
the country that there are other drivers here. We are
confident that lower interest rates will will kick in and
we will see that recovery through the second half of
(07:45):
this year.
Speaker 1 (07:46):
Well, let's hope you're right. Appreciate it very much, Christian Hawksby,
who's the acting Reserve Bank Governor.
Speaker 2 (07:51):
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.
So to the wonderful world of the Central Bank and
their view of where we're at and what we need
to do economically, twenty five point, can't cash rate it
for while it's down to eventually it's going to be
two and a half. They think four two vote hasn't
happened before. A couple more cuts before Christmas. So Christian
hawksby acting Reserve Bank Governor's back with us. Good morning oday.
What do you say to people like Jared Kerr and
Greg Smith at Devon who have yelled for months now
(00:23):
fifty points, fifty points and fifty points last time you
held in this time it's only twenty five They're right,
you're not. What do you say?
Speaker 2 (00:32):
I say that we're focused on our mandate, which is
achieving our inflation target and focused on those medium term
inflation pressures. And it's really been the economy stalling over
this Q two that's revised down that outlook, and that's
what we're responding to today.
Speaker 1 (00:51):
And then that is part of the problem the Q two.
A lot of people saw it, saw it coming, and
we're yelling and you didn't. How come you didn't see it?
Speaker 2 (01:01):
Well, we saw some of it come through in the
early phase, and in July. We had a meeting in
July and we indicated that there was some signs there
and that we were open to cutting going forward. So
we gave that signal and that bias in July. As
it's gone through since then, there's been even more signs
until we've got more confidence that we can lower rates,
(01:23):
and we can lower them very quickly.
Speaker 1 (01:25):
Yeah, but you should have done that already.
Speaker 2 (01:29):
We just look forward from where we are is all
we can do. We play the ball in front of us.
Speaker 1 (01:34):
But what I'm trying to ascertain here is how is
it that so many people could see what was coming
in Q two? The will felt weird, it felt bad,
the local economy was crap, and we all feel it
livet see it. How come you can't see the same thing.
Speaker 2 (01:51):
Because you know there are risks on either side of
the outlook that risk to growth has come through. There
are risks on the other side around inflation. Headline inflation
getting up around three percent. We've got it at three
percent for Q three, fifty to fifty percent chance it
(02:12):
could go over three. There's a risk that that could
push up inflation expectations and make our job harder. So
for our committee, we revise down our ocr prediction, but
we do actually see balanced risks around that lower path
that we'll put out.
Speaker 1 (02:29):
That inflation how much of it's driven by power, insurance
and rates and how much of that do you look through?
Speaker 2 (02:37):
A good chunk of it is And so core inflation
measures are falling, which is a good sign for US
keeping inflation. An coed it that two percent target out
in the medium term, So we think we can look
through a lot of that rise, that near term rise
(02:57):
that we're seeing, but there is a risk that it
does get embedded. And we've seeing household inflation expectations tick
up and we're watching those very closely.
Speaker 1 (03:07):
But why have they ticked up, Christian? They've ticked up
because I've got my rates bill and my power bill
and my insurance bill, and I just can't work out
what you can't see for next year. Why would a
council who's charging me twelve percent more this year not
charging me another twelve next year because they can it's
cost plus accounting.
Speaker 2 (03:24):
Councils will make their own decisions. We just have to
focus on what, in totality all that means for inflation
pressure in that medium in that medium term.
Speaker 1 (03:35):
Yeah, but if I look at a council's behavior and
I look at a power company's behavior and an insurance
company's behavior, I'm seeing what you see. They're not putting
their prices down. They're driving inflation, and I don't see
that changing. Therefore, that's not changing. Why do you think
it is.
Speaker 2 (03:52):
There's just one part of the equation. We do have
a lot of spare capacity in the economy, and so
that's what that's the driver that we see core inflation
settling more at two percent in that medium term, because
it's just we're not in an environment where all firms
can pass on higher costs, and we're not an environment
(04:15):
where households can bid up wages because we have a
very soft labor market at the moment.
Speaker 1 (04:20):
But isn't that the crux of your problem. The crux
of your problem is what's driving inflation is not productivity.
It's just people sending out bills, and so you've got
your inflation, but you haven't got it with growth. It's
not the growth that's driving the inflation. Hence the traditional
worry you might have.
Speaker 2 (04:38):
So we're focused on cyclical economy. So it's really about
how much slacked there is relative to that potential growth rate,
and so that's what drives us. We've got that medium
term perspective. Productivity and potential growth is really a long
term story. It's about new skills, new technology, and new
(04:59):
ways of work, a new products, new markets. You know,
that's that's out of our control, and even policies to
promote those things are going to take time to flow through,
and we won't see it immediately.
Speaker 1 (05:12):
The fifty percent, I think Karen was talking about it,
the fifty percent that's yet to flow through, as she
termed it, How wedded to that idea, are you?
Speaker 2 (05:21):
Oh? That that's very mechanical, even that that's based on
what we've done today. It's just the fact that we
know that people are who have fixed at those higher
rates just have to wait and bide their time and
to lad the opportunity.
Speaker 1 (05:41):
I didn't work. I didn't work it properical. Yeah, I know,
I get it. It's a mechanical question. I get it.
But when I get my money, when I get the
relief from the fixed interest rate and it comes down
and the insurance bill comes through, I'm no better off. Therefore,
I'm still in a funk. Therefore, the economy is still
not moving.
Speaker 2 (05:55):
And that's why since May we are providing more stimulus
because things have changed. Things have been cooler, households are
feeling like they've got less discretionary income, all of those things,
and that's what prompted the action yesterday, and that's what
prompted the conversation about with it to go fifty.
Speaker 1 (06:16):
Yeah, but they don't feel like they've got it. They
don't have it. It's a statement of fact. They don't
have it because of all of the inflation driven things
I mentioned a moment ago. The difficulty you face, as
far as I can work out, is you haven't done enough.
And now, if panic's too strong a word, you've certainly
woken up to the fact you've got to do more.
You've got at least two before Christmas, and I just
(06:36):
don't know for a fact that people are going to
respond to you because we're in such a funk. It's
the psychology of a recession, isn't it.
Speaker 2 (06:46):
We see risks on both sides. We're already seeing in
the July datus that some pick up and economic activity,
some of those anecdotes are coming through. We've got confidence
that there are drivers of this economy. We've got high
export commodity prices. We've got outside of Wellington and Auckland
(07:09):
the vibers different people feel.
Speaker 1 (07:13):
It's been that way all year. The farmers are booming
and it's brilliant they're booming. But you can't say outside
of Auckland. Auckland is the engine room of the economy.
Speaker 2 (07:23):
It's a large part of the economy, but it's not
all of the economy. If we could, If we could,
we would set interest rates differently for Auckland and Wellington,
but we have to set interest rates for the for
the country that there are other drivers here. We are
confident that lower interest rates will will kick in and
we will see that recovery through the second half of
(07:45):
this year.
Speaker 1 (07:46):
Well, let's hope you're right. Appreciate it very much, Christian Hawksby,
who's the acting Reserve Bank Governor.
Speaker 2 (07:51):
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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