Kelly Eckhold: Westpac Chief Economist on the OCR getting cut by 25 basis points amid tariff uncertainty

There's uncertainty about what's next after today's OCR cut.

The Reserve Bank has slashed the Official Cash Rate 25 basis points to 3.5 percent, with most banks responding by cutting their advertised rates.

Economists are divided on how far rates will fall.

Westpac Chief Economist Kelly Eckhold says the global trading environment is changing by the day.

"There's no clarity, really, about the extent to which these tariffs are going to be in place, how countries are going to respond - and importantly, how this impacts on New Zealand as well."

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Episode Transcript

Speaker 1 (00:00):
The Reserve Bank has cut twenty five points to three
and a half percent. On the question of tariffs and
how they might impact the economy going forward, they basically
said it's too soon to say, but they did say
there is room to move lower should they need to.
Kelly Echol's Westpac chief economists with US tonight. Hi Kelly,
hi yah, are you good? Thank you? So they've taken

(00:20):
the steady as she goes option, which is probably the
right one given the times.

Speaker 2 (00:25):
Yeah, I think that's right. There was certainly no sense
of undue, anguish or panic there, which is appropriate given
things of moving quite quickly right now.

Speaker 1 (00:35):
How they mentioned they do have room to go lower.
Three Adrian noise to say that was the sort of
bottom of neutral. Would they go lower than that?

Speaker 2 (00:45):
Well, I think there's a possibility that could happen. They
didn't really say anything like that in this statement. They
just more pointed to the downside risks for growth, particularly
into inflation. To some extent, you don't have to be
very much of a rocket scientist to believe that. When
they'd give us the next set of forecasts in May,

(01:07):
that will forecast to interest rate being a bit lower
than it was and where it was had a bottom
of the OCA about three point one percent.

Speaker 1 (01:15):
So where do you reckon the bottom might be now?
I guess we've got too soon to say are you
are you sticking to their line on Thatt Kelly or
are you going to go further for us?

Speaker 2 (01:23):
I think it's a little bit hard to say. I mean,
it's pretty clear to me that there's downside risks to know,
certainly the forecast that we've had for a couple of
months now that the bottom of the cycle will be
at three point two five percent, But exactly the extent
of those I think is genuinely very hard to assess.
And if you just take a casual look at the

(01:44):
news flow you can see why. I mean, there's no
clarity really about how long and that the extent to
which these tariffs are going to be in place, how
countries are going to respond, and importantly how this impacts
on New Zealand as well, because there's quite a few
changes happening every day in that regard.

Speaker 1 (02:03):
Your colleagues are at Kirybank, I said, I saw a
note from them. They want a quick reduction, they want
the ocr down, they want two and a half percent
by the end of the year. Do you think that's
rushing things?

Speaker 2 (02:14):
Well, the end of the year is a long way here.
So if it does turn out that a meaningful adjustment
in interest rates is required, I would agree with them
that it will occur by the end of the year.
But what we don't really know here is how large
an adjustment is actually going to be required. All due
respect to them, they've decided to have a bit of
a guest here and they put a number on it.

(02:35):
But I'm also looking at the exchange rate here, and
I expect that it will continue to fall, potentially by
quite a lot. And the extent to which it falls,
and the extent to which some of these things we
see globally actually impact on things like export prices is
going to really.

Speaker 1 (02:51):
Matter massively to us. I mean, we're an export nation.
What about the risks? So we've spoken a lot about
the downside risk too of recession potential recession in the States,
and you know our exports, et cetera. But what about inflation,
And like, surely the growth downside is riskier or more

(03:15):
likely than the inflation downside.

Speaker 2 (03:17):
Right, Yeah, I think it's much more clear that we've
got a lower growth outlook coming out of this than
with inflation, where there's things pushing and pulling in different directions.

Speaker 1 (03:28):
Kelly, great to have you on the show. Thank you, Kelly,
you're cold Westpac Chief Economist. For more from Heather Duplessy
Allen Drive, listen live to news Talks. It'd be from
four pm weekdays, or follow the podcast on iHeartRadio.