Sharon Zollner: ANZ's Chief Economist on the bank's changed outlook on the official cash rate.

The ANZ Bank has changed its official cash rate (OCR) forecast, now expecting the first cut to arrive in February, rather than May 2025. 

Meanwhile, The European Central Bank has cut interest rates for the first time in five years, and the Bank of Canada has become the first G7 nation to cut rates. 

ANZ Chief Economist Sharon Zollner told Heather du Plessis-Allan “Essentially the Reserve bank’s mandate is to get inflation under control.” 

Zollner said “It’s the mix of inflation that matters – oil price is the biggie, which they can’t influence. But homegrown inflation is very slow to fall.” 

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Episode Transcript

Speaker 1 (00:00):
Now A and Z has got some good news for us,
but also a little bit of bad news. The good
news is the bank is now predicting the Reserve Bank
will cut the OCR in February, which is three months
earlier than they were previously saying. The bad news, though,
is that the rate cart's only going to be possible
because the economy is weak and unemployment they're predicting will
be higher than five percent by December. Sharon Zohlner is
A and Z's chief economist and with US evening.

Speaker 2 (00:21):
Sharon, good evening.

Speaker 1 (00:23):
Okay, why only three months? Why not bring it forward
to November.

Speaker 2 (00:28):
It could happen. But essentially the Reserve Bank, you know,
their mandate is just to get inflation under control, to
get it to two percent, but not only that, but
also be pretty confident that it's going to stay in
that sort of one to three percent range. So given
they've struggled to get runs on the board so far,
we think they'll be pretty cautious and if anything, probably

(00:48):
err on the side of caution. They always have the
option of cutting faster, but if they cut too soon,
the market will run away with that, and then hauling
it back would be actually pretty challenging.

Speaker 1 (01:00):
Do you think they're aiming for two rather than just
anything sub three.

Speaker 2 (01:04):
Well, if you aim for two point eight or something,
then it's really not going to take much to bounce
out of the band again. So certainly they're on the
record of saying yes, they are aiming at two so
as to maximize the chance of staying in that band.

Speaker 1 (01:17):
And so when do you reckon it hits two.

Speaker 2 (01:20):
We've got it heading two sometime next year. But it's
really the mix of inflation that matters, because there are
some parts of inflation that in the made offshore and
the oil price is a bigoie that obviously the Reserve
Bank of New Zealand can do nothing to influence, so
they really do focus on the homegrown inflation and that's
the bit that's been unfortunately, very very slow to fall.

(01:41):
So whether we're thinking more in terms of getting that
down and by February next year that probably won't quite
see where it needs to be, but we think it'll
be well on the way and the Reserve Bank will
be pretty confidence forecasting that it'll get there pretty soon.

Speaker 1 (01:54):
Do you reckon that the Reserve Bank governor is getting
any traction out of his jewel boning.

Speaker 2 (02:00):
To get intraction out of his ocrhikes. Whether you get
traction out of just threatening people to not raise their prices,
I'm not sure. We've seen them on a few occasions
sort of talk directly to firms about their pricing decisions
and directly to consumers about their inflation expectations, telling people
to trust trust our forecasts, not what you see out

(02:20):
the window. At the moment, I don't know if it works,
but hey, it's a pretty low cost way of achieving
things as opposed to actually causing the economic pains. It's
probably worth a crack.

Speaker 1 (02:30):
How weak is the economy do you think?

Speaker 2 (02:33):
Well, we can see that GDP is practically zero in
terms of growth, and of course we've got population growth,
so GDP per person is looking really quite Sobby. The
issue is that the Reserve Bank also has to estimate
how fit the economy is, so how fast can it
run without generating inflation? And unfortunately they've changed their mind
about that, and that was the big issue. Last month

(02:54):
we saw them revise down their forecast for growth but
actually revise up forecast for inflation. Nonetheless, because they looked
at the productivity data, they looked at the lack of
traction on inflation and decided, actually, this economy is really
not very fit at all. For our part, we're optimistic
that actually what we're seeing is just really persistent lags.

(03:14):
There are a lot of prices in inflation that depends
on inflation that's gone before even you know, insurance. A
lot of people are talking about insurance and rate hikes
for example. That depends a lot on construction costs, which
of course the Reserve Bank absolutely does influence VI it's
impact on the housing market. So some of it, we
think we just have to be patient.

Speaker 1 (03:34):
Sharon. It's so good to talk to you. Thank you
very much. Really appreciate the good news that Sharon's on
A and z's chief economists. For more from Heather Duplessy
Alan Drive, listen live to news Talks. It'd be from
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