Jenee Tibshraeny: NZ Herald Wellington business editor on the Reserve Bank cutting the OCR for the first time since 2020

There's shock and excitement across the nation, as the Reserve Bank makes cuts to the OCR for the first time since 2020.

The Bank's slashed the cash rate by 25 basis points to 5.25 percent.

NZ Herald Wellington business editor Jenee Tibshraeny unpacks what brought this change on - and what caused Governor Adrian Orr to announce this.

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Episode Transcript

Speaker 1 (00:00):
Now Reserve Bank Governor Adrian Or had to do a
fair bit of gymnastics today to explain the cut to
the official cash rate And if the goal of monetary
policy in this situation is for a soft landing, can
you say you've actually delivered that? And I don't know
how to answer your other question really so yeah. Genetive
Trainey is The Herald's Wellington Business editor. She was in

(00:20):
the room this afternoon. Adrian A hey, Heather couldn't say
he got it wrong the way.

Speaker 2 (00:25):
No, he didn't want to say he got it wrong.
So the question that I asked the governor was back
in May when the Reserve Bank suggested the OCI would
only be cut later next year. Was the Reserve Bank
wrong in May? Or was it bluffing? Was it draw boning?
Was it trying to talk the market into keeping interest
rates elevated? And Adrian all said. What he did say

(00:47):
was that no, they weren't bluffing, that they weren't you
just trying to talk the market into doing what it wanted,
but rather that the economic data that has come out
since May has suggested there's the economy is quite a
bit weaker than expected and hence the reason the IRBZ
cut today and has projected further cuts twenty five basis points,

(01:12):
you know, at each next meeting.

Speaker 1 (01:15):
His argument basically came down to things have changed so
much between May and August that suddenly a cut was
on was on the cards and actually happening. Do you
buy that?

Speaker 2 (01:25):
Look, I think the consensus among economists was that the
Reserve Bank was wrong in May. So back then the
economy was not performing strongly. You know, anyone who walks
around town or you know, is trying to manage their
budget or whatever, realizes that that things are not not great.
But the Reserve Bank was an outlier at that point.

(01:47):
It didn't seem to recognize the weakness in the economy
to the extent that everyone else did. I mean markets
back then we were pricing in cuts as well, so
you know, they were shocked that the Reserve Bank thought
they might need to be hiked again. So I think
the consensus ABI and Z was wrong back in May.

Speaker 1 (02:06):
Yeah, yeah, yeah, totally. Hey, I was actually quite impressed
with how he handled it because he is known to,
like me, wears his emotions quite close to the skin.

Speaker 2 (02:15):
Yeah. Look, I mean this is the thing. So I
think there's two schools of thought have come out of
this flip flop situation. You have people like Brad Olsen,
the Infametrix economists who think the Reserve Bank's credibility has
been eroded because it's changed its positions so drastically in
such a short space of time. So how do we
know when it has these projections? Are they really projections
or is it just kind of like basically trying to

(02:38):
talk the market this way that way. Then you have
other economists like bean Z's Stephen Topless, and he says, well, yep,
probably got it wrong in May, but actually really good
that they're correcting their position now, because in Stephen Topless's view,
at least a cut was definitely the right call to
make today and actually should have been made earlier. So

(02:59):
I think it is it and an interesting tension as
to how how critical you want what you want to
be of the Irby and Z. The other thing I
would point out is that they've started putting emphasis on
different data. Previously, it sounded like the Reserve Bank put
emphasis on the CPI, you know, the inflation data, the
GDP data, the Tier one data. Now it sounds like
they're putting a bit more emphasis on on the business

(03:20):
confidence surveys, the Tier two data, some of the more
real time information about how the economy is going. That's
the sort of that's the sort of information that that
markets track really closely. That is perhaps, yeah, perhaps a
wee change of approach there.

Speaker 1 (03:35):
That was very interesting. I noticed that as well. Jennay,
Thank you so much, Chaintive Training, the Heralds Wellington Business Editor.
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