Brad Olsen: Infometrics Principal Economist on today's 'double-cut' to the OCR

There's praise for the Reserve Bank tonight - from one of its fiercest critics.

It's signalling this afternoon's double-cut to the Official Cash Rate will be followed by at least two more single cuts.

Infometrics Principal Economist Brad Olsen infamously angered Governor Adrian Orr last year, when he accused him of 'flip-flopping' on forecasts and decisions.

Today, Olsen says Orr's made the right call.

"The right move to cut, the right sort of forecast now with the Reserve Bank pricing in what the markets have been thinking as well - it's very much a sensible decision."

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Episode Transcript

Speaker 1 (00:00):
The OCR down fifty points now three point seventy five.
Banks are starting to cut their rates mainly though on
the floatings. Adrian Or who's the governor, made it pretty
clear today what you can expect and when.

Speaker 2 (00:13):
We are looking at lowering the official cash rate a
little bit quicker than what we projected back in November,
but that's around fifty basis points by mid this year,
around July, and in the document that comes broadly into
twenty five basis point steps. It doesn't stop there. We
have our projection of the OCR being around three percent

(00:36):
by year end.

Speaker 3 (00:37):
Brad Olson's informatric Principal economists Brad Good Evening.

Speaker 4 (00:40):
Good Evening.

Speaker 3 (00:41):
So we're going cutting basically sooner and deeper.

Speaker 4 (00:45):
Why well, Effectively, the Reserve Bank is a lot more
confident about where it's heading in certainly where it's been
on the inflation front. I think, you know, hearing from
the governor at his press conference this afternoon, he was
pretty chipper about things. Is at two point two percent,
it's pretty close to that midpoint, and a lot of
the expectations that the Reserve Bank had for how the

(01:07):
economy was going to play out is broadly coming true.
Those inflationary pressures have come back, the economy still in
a tough position at the moment, and interest rates setting
still restrictive, and so the Reserve Bank wants to remove
those restrictions more over time. Long story short, this announcement
was broadly or very much as expected, the right move

(01:27):
to cut, the right sort of forecast now with effectively
the Reserve Bank pricing in what the markets have been
thinking as well, and so very much a sensible decision
coming out from the Reserve Bank today.

Speaker 3 (01:39):
They were also saying today, don't get your hopes up
if you're looking for cuts to your longer term rates,
your two to five year rates, don't be expecting much
of a change.

Speaker 4 (01:49):
No, that's right, and even you've just noted it around,
you know, the focus from the retail banks has been
at the shorter end, looking at the floating rates, and
some of those sort of shorter term numbers are the
longer term rates have actually on a global stage, they've
been pushing a bit higher because of what's coming out
of the US and the US economy, and so probably
not as much of a shift there, I think for

(02:09):
households as well, though a lot of them are sure
they might be looking for a few more cuts coming
through in the system, but for a lot of households,
they're just looking forward to refixing on to what is
already a lower interest rate now than what they might
have been on previously as the year rolls through. And
so there's I think about half of the mortgage book
that reprices and has to or could refix in the
next sort of half a year or so, so a

(02:31):
lot of that activity coming through. I think what the
Reserve Bank is signaling is, look, they've had a direction
that they were moving in. They're a bit more confident
about doing that a bit quicker. I do worry a
little bit that maybe they're a little bit too optimistic
on continuing with that stronger tone. I worry you maybe
there's a bit more risk on, a bit more pressure
towards the second half of this year. Not enough to

(02:52):
deviate from where they are, but just you know, maybe
a little bit more caut will be warranted. But that's
for another day. The Reserve Bank has said, look, they
are continuing to cut. That will come through. It might
not come through as much for each and every household,
but it's very much there, and they've got options going forward.

Speaker 3 (03:06):
Yeah, as they keep saying today that it depends on
the data, doesn't it, So you can always change your mind, Brad.
Thank you for that, Brad Olsen, Informetric Principle Economists. You're
on News Talk sad Bet.

Speaker 2 (03:15):
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