Kelly Eckhold: Westpac chief economist giving a preview on the OCR

The Reserve Bank's expected to cut interest rates again this afternoon, to aid economic recovery. 

Economists are projecting a 25 basis point OCR cut to 3.25% - the lowest cash rate since September 2022. 

Westpac chief economist Kelly Eckhold says beyond that, there's a bit more debate. 

He says told Ryan Bridge Westpac is forecasting they'll stop at three percent. 

Eckhold says next year if the global environment looks weak, then inflation could fall back quite rapidly - so some commentators are suggesting rates could get to 2.5%. 

LISTEN ABOVE

See omnystudio.com/listener for privacy information.

Episode Transcript

Speaker 1 (00:00):
Now it's our day today. That's why I'm all excited
and all over the place. Where are those numbers going
to go? Twenty five basis point cut is on the cards.
That would take us to three point twenty five percent?
Westpac chef economist, Kelly, you're cold with me, Kelly?

Speaker 2 (00:10):
Good morning, Good morning.

Speaker 1 (00:12):
Hey. They're going to go down, aren't they? How low
will they go?

Speaker 2 (00:15):
Though?

Speaker 1 (00:16):
That's the question, isn't it?

Speaker 2 (00:18):
Well? Today I think we get the twenty five point
cut from universally expected and had been pretty well signaled previously.
After that, though, I think there's quite a bit more debate.
Quite a lot of the data that's come out last
few months hasn't really surprised negatively the reserve bag very much.
It really depends a lot on how much weight they

(00:39):
put on that international outlook.

Speaker 1 (00:42):
That's the big question here, isn't it? Because your non
tradable inflation is coming down, You've got CPI within band,
so you know, and to what extent? Because below three
percent you're starting to get expansionary? Right, to what extent
is the reserve that meant to just keep cranking growth?

Speaker 2 (01:01):
Well, it's not on the mandate at all, right, it's
all been changed to be solely focused on inflation. And
I think the problem they've got here is in the
short term, Like if you look at inflation forecast for
the next year, inflation's actually nudging three percent again, So
when you're seeing that sort of profile, you wouldn't normally
expect them to cut rates very far. So hence, you know,

(01:23):
we've got a forecast that suggest that they'll get down
to about three percent and finish the year. But after that,
if you look through its next year, if this global
environment looks really weak, then inflation could fall back quite rapidly.
So hence you've got some commentators talking about maybe rates
getting to two and a half percent.

Speaker 1 (01:41):
Then you're into real guessing work, though.

Speaker 2 (01:43):
Aren't you. Well, we're always in the guessing stage. Now,
we've got to remember that this easing cycle was very
well advanced. You know, we've had two hundred points of easing.
We'll be getting up towards two hundred and twenty five,
maybe even a bit more as you go through the
next few months. I think it's fair. It's not just
simply a case of closing your eyes and picking a

(02:03):
rate cat. You're going to have to start thinking about pauses.
In some stage it will stop.

Speaker 1 (02:09):
So what do we do right now if we're waiting
for the bottom?

Speaker 2 (02:14):
Well for borrowers, I mean basically, what usually happens is
people go back to picking the lowest rate on the curve,
don't they, So all the mortgage rates have adjusted down
quite considerably. You know, usually at this stage that's when
people start moving sort of out of the very short
rates into something a bit longer so that they can
lock in current rates for a while. And I don't
think there's any prospect of rate hikes coming into the

(02:38):
calculations for quite some time. But you know, the idea,
for example, that the mortgage rates go down into the
very low fours or into the three starts to look
a little bit speculative a thing, and there's something really
bad happens.

Speaker 1 (02:52):
Which, as we have learned from history and even recent history,
can happen. Kelly, appreciate your time this morning, Kelly Cold
Spective Economists with us.

Speaker 2 (03:02):
For more from Early edition with Ryan Bridge.

Speaker 1 (03:04):
Listen live to News Talks it be from five am weekdays,
or follow the podcast on iHeartRadio.