Ryan Bridge: What the OCR says about the state of our economy

Remember just a few weeks ago how Sir John Key wanted 100 point cut from Reserve Bank?

We'll, they've almost given him what he wants. 

It's easy to be an armchair critic of the boffins down at Number 2 The Terrace - "They should have gone for 50." "Club 25 was too cautious." 

But markets listen as much to the guff after the big cut announcement as much as they do the actual announcement. Need proof? Already retail banks have started slashing mortgage rates, both variable and fixed. 

That's on top of the cuts they already made last week, pricing in yesterday's 25. 

Some of the big ones will, in the coming weeks - I reckon we'll get down to 4.5% on short-term fixed.

Look how the currency markets reacted - these guys were surprised. 

Coming out with what is essentially a triple shot to 2.5% by Christmas sends is sending a strong signal.

It's easy to get caught up in the hysteria of calls for double shot all at once, but the bank can have its cake and eat it too. Get businesses and households spending without risking inflation, which is touching cloth on 3%.

Yes, they do look through near-term stuff. But there's also heat in the provinces - it's not all about Auckland.

And remember the days of Orr where the Reserve Bank hiked the rate quick as a sherpa up Everest before nosediving it back down again? You can achieve the same outcome without risk overcooking things again. 

It's only six or so weeks till the next call. If they need to do more, they can do more then. 

There's no doubt we've had a Q2 recovery blip, but we've had promising July manufacturing and improving services data out last week.

The message is clear: we're walking back to Everest base camp, not running. 

And given the over and under cooking that went on under Orr, that's probably the right speed

So, I'm with the four in Club 25 with a caveat - for now. 

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Episode Transcript

Speaker 1 (00:00):
Remember just a few weeks ago John Key came out
and he said he wanted one hundred basis point cut
from the Reserve Bank. Well, they almost gave him what
he wanted yesterday. It's easy to be an armchair critic
of the boffins down at number two the terrorists. They
should have gone for fifty Club twenty five was too cautious.
But markets listen as much to the guff after the

(00:21):
big announcement as they do the actual announcement. And if
you need proof of that, already, retail banks have started
slashing mortgage rates, both variable and fixed. That's on top
of the cuts that they already made last week. Pricing
in the twenty five some of the big ones will
in the coming weeks, some say some economists picking get
down to four and a half on short term fixed.
Look how the currency markets reacted. These guys were surprised.

(00:45):
Coming out with what is essentially a triple shot to
two point five by Christmas is a strong signal to send.
It's easy to get caught up in the hysteria of
calls for double shot all at once, But the bank
have its cake and eat it. To eat it too,
get businesses and households spending without risking inflation which is

(01:06):
touching cloth on three percent. Yes, they do look through
near term inflation, but there's also heat in the provinces.
It's not all about Auckland. And remember the days of
Adrian Or where the Reserve Bank hiked the rate quick
as a sherper up Mount Everest before nose diving it
back down again. You can achieve the same outcome without

(01:27):
risking overcooking things again, repeating the same mistakes. It's only
six or so weeks till the next call. If they
do need more, they can do more. There's no doubt
we've had a quarter two recovery blip, but we've had
promising July manufacturing data. We've got improving services sector data

(01:48):
out last week. All of that stuff is happening. All
of that stuff is good and showing promise. The message
is clear. Though. We're not walking back to Everest camp.
We are walking back to Everest camp. Rather, we're not running.
We're not in a hurry, we're not sprinting. And given
the over and undercooking that went on under Or, that's
probably the right speed. So I'm with the four in

(02:10):
Club twenty five with a caveat for now. For more
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