Katlyn Parker: Milford Asset Management expert on the economic impact of years of high interest rates

The Reserve Bank's decision to leave the OCR in place was in line with expectations - but their tone caught markets by surprise.

The Bank indicated inflation could return to the one-to-three percent threshold by the end of the year, and cuts could be coming sooner than predicted.

Milford Asset Management's Katlyn Parker explains further.

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Episode Transcript

Speaker 1 (00:00):
Now let's go to Caitlin Parker of Milford Esset Management.

Speaker 2 (00:02):
Hy Katelin hik Harian.

Speaker 1 (00:04):
Okay, I'm very well, thank you. Now we've got almost
three years of high interest rates. Are we starting to
see an acknowledgment do you think from the Reserve Bank
of the damage that this is causing the economy?

Speaker 2 (00:14):
Yeah, looks preasingly we are so for the first time
this cycle. Today the orban zat they signal their intent
to create in the statement, and that was definitely a
pleasant surprise for the market because going in, you know,
most of us we did expect that the statement was
going to be pretty neutral since the Orbenz We're going
to actually say very little, and the market had been
expecting the Urban ved to specquitting rate later this year,

(00:37):
but no one is really expecting them to admit to
this today as such, and they will and truly did
let the cat out of the bag that they are
thinking about interest right cut. So this was a definite shift,
and some of the key points I suppose for me
was really the confidence that the orbanz have I mentioned
it I think twice in the statement, but they are
confident that inflation will go back to their one to

(00:58):
three percent target and then six months. And also the
Urbian said they did discuss that this height monetary policy,
these high interest rates that they're feeding through to domestic
demand more strongly than they expected, but very positively. There
was no mention of or any talk of another out
or hike in the statement today versus earlier in the

(01:19):
year when they tried to elude and come into the
market that potentially they would hike again if inflection remained
for a bust.

Speaker 1 (01:25):
Yeah, and so what was the market reaction to the
Reserve Bank today?

Speaker 2 (01:29):
Look, so market was expecting them to start cutting later
this year, and now they're expecting a larger quantum of
cuts and at a faster pace. So now putting about
a sixty percent probability that the orbans that will start
cutting in August versus later in the year. So we
thought interest rates putting lower immediately on the back of
that statement being released. So the two year interest rate,

(01:51):
which is an input into mortgage rates, that was down
abouero point two percent. Currency was also weaker, and share
market raleigh on the back of it a bit. So
it was received very well by the market, and I
would imagine that these moves will be somewhat extented that
the offshore markets come in and get involved overnight. So
the urbian zed they would have been well aware of

(02:11):
what this statement would have done and the market reaction
that would have been received at the market starting to
price in work. But so it won't be surprised at
Orbionzett how and markets have reacted.

Speaker 1 (02:22):
Kaitlin. Always good to talk to you. Thank you so
much for the expertise. It's Kaitlyn Parker of Mills Fedesset Management.

Speaker 2 (02:27):
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