Brad Olsen: Infometrics principal economist on what we can expect from the first OCR update of 2025

It's the Reserve Bank's first official cash rate decision for 2025 - and many economists are predicting a rate cut to start off the year.

The RBNZ is largely expected to lower the OCR by 50 basis points tomorrow, with two major banks already announcing rate cuts.

Infometrics principal economist Brad Olsen says a significant cut looks likely - but warns the central bank runs the risk of overdoing their response again.

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Episode Transcript

Speaker 1 (00:00):
Six fourteen news talks. There'd be Adrian and All's first
outing for the year tomorrow, just one more sleep until
where it's pretty much expected to get a fifty basis
point cut. So the Reserve Bank the decision tomorrow. Brad
Olson is the Informetric's principal economist, Brad Good Evening.

Speaker 2 (00:15):
Good Evening.

Speaker 1 (00:16):
So the fifty basis point camp is growing by the
second ahead of the big day tomorrow. Are you in
that camp?

Speaker 2 (00:23):
Yes, very much so. I mean, the Reserve Bank made
a bit of a pretty strong rod for their own
back back in November and said, look, it would be
a pretty difficult move for them to not move by
fifty when they look at the monetary policy settings. And
I think part of that was because they had a
big three month break before between November and this review
in February. They wanted to give a pretty strong level

(00:45):
of guidance to the market over where they're thinking was
where they thought the direction of travel has gone. All
of the data that we've had since then has broadly
been in the same sort of area. You know, you've
seen economic activity that declined, some big revisions in those numbers,
but the likes of the unemployment rate, the likes of
inflation all broadly coming in at the right level, So
not enough of a shift from expectations for the Reserve

(01:08):
Bank to shift from their pretty strong guidance. They don't
normally give it quite so strong, and so I think
they'll stick to their word at this point.

Speaker 1 (01:16):
And then the interesting part, of course, will be what
happens after that three and a half percent was where
they predicted they might get to by year's end, around
three percent is neutral. Do you think that that track
will change?

Speaker 2 (01:28):
Well, I think that's the thing that we're sort of
a bit unsure about at the moment. Even financial markets
have started to show a bit of a shift so
far in twenty twenty five. You know, still pricing in
an expectation that the sort of bottom would be around
that three percent mark. But interestingly there's a bit more
market pricing now picking a slight increase in the official

(01:49):
cash rate come early twenty twenty six, and that does
make us wonder, if you know, some of those worries
about the likes of global inflationary pressures the lower exchange
rate is a risk. I think if the Reserve Bank
continues with this expectation of more and more cuts that
they might well overdo it again, They might cut too
much and then have to raise things up in twenty

(02:10):
twenty six. So I think that a smarter move would
be for the Reserve Bank to go back to their
sort of watch and worry and wait settings where they
say that sort of course of least regrets from here
is being a bit more data dependent and saying, look,
we might well move a bit slower than we said before.
We might not cut as much. And I think that overall,
the tone I think as most appropriate as saying that

(02:32):
there might not be as many further cuts on the table.

Speaker 1 (02:35):
Which means we got really hurt when they went too
far one way, and we won't get we won't get
the benefit of them going too far the other way.

Speaker 2 (02:42):
Well, the question here really is we do interest rates
sort of settle now what is normal? Because I think
anyone thinking that interest rates are you know, getting a
mortgage of two percenters is sort of you know, lost
their vision a little bit here. I mean that was
abnormal interest rates for abnormal times. You know, if you
saw interest rates sort of a round that sort of
low five high four percent mark, that's probably where I

(03:04):
think a lot of people. If you look back over
interest rates over time, that'd be pretty happy with those
sort of numbers. But of course we've got much high
house prices than before and similar so I do think
we're trying to figure out where the new goldilock zone is.
But I think as well for the Reserve Bank, I
think surely it would be a bit more appropriate now
to go. Look, we've done a lot of the heavy
cutting that they needed to. Now it's about fine chuning

(03:26):
the process a bit. So let's not be hasty and
going cap cap cut. Let's have a little bit more
of a nuanced approach sort of vectoring and all the
data that's coming through, because there's still a lot of
moving parts. There's tariff says, exchange rates, their growth around
the world, all of that will make a difference.

Speaker 1 (03:40):
All right, Brad, thank you very much for that. That's
Brad Olsen, Informetric's principal economist. For more from Heather Duplessy
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