September 22, 2025 • 8 mins
Rabobank's Macro Strategist (Senior Economist) comments on last week's dismal GDP number (-0.9% for the June quarter) and what it means for interest rates for NZ farmers. Plus, could we see our OCR drop to as low as 2% by February 2026?
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Episode Transcript
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Speaker 1 (00:00):
Let's head to Sydney. Ben Pickton as a macro strategist
and Layman's terms, that's kind of like a senior economist
for Rabobank, Ben intrast rates. We had a zero point
nine percent fall in GDP last week. It's changed the
environment or the outlook for interest rates. How low can
(00:20):
we go? Yeah?
Speaker 2 (00:22):
Good, Jamie.
Speaker 1 (00:23):
Yeah.
Speaker 2 (00:23):
The GDP report that came out, it was I think
fair to say it was a shocker, really bad number,
negative point nine percent to the quarter, and especially in
the context of what the rbn zaid was expecting. So
they were expecting the economy to shrink, but only by
zero point three percent, so it's quite a big miss.
(00:45):
The economy was performing worse than expected in the second
half of the year, and as a result, our view,
certainly in the view of many other banks I'm seeing,
is that the RBNZ is probably going to do more
to try to port the economy to get demand moving again,
because the gap between demand and supply is now wider
(01:07):
than they thought. Demand is further below supply than what
they previously thought, and that opens up risks for unemployment
and also for inflation sort of persistently undershooting their target has.
Speaker 1 (01:20):
The Reserve Bank completely cocked this up. The cure is
much worse than the original disease.
Speaker 2 (01:27):
Well, I guess there's going to be different views on that.
It depends whether you think inflation is worse than recession.
I guess if you if you lose your job in
a recessions, that's disastrous. If you have high rates of
inflation over the long term, It's maybe not immediately disastrous
as long as you're holding on to your job, but
(01:49):
it is corrosive to the economy over the longer term.
It does make things a lot harder for households than businesses.
So the RBNZ has an inflation mandate that has agreed
with the government. They're making policy according to their mandate.
In one sense, they've achieved their mandate. They've got inflation
(02:10):
back under control. But yeah, but at what costs?
Speaker 1 (02:13):
Right here, let's have a look October the HiT's the
OCR or the Reserve Bank meet again. They'll do their
OCR review and it's going to be good. A former
stable mate of yours, Hailey moynihan. All these days, Hailey
Gorley is going to be on that Monetary Policy Committee.
We talked to Hailey on yesterday's show. Look, it's as
sure as night follows day. They're going to drop fifty
(02:34):
basis points, aren't they.
Speaker 2 (02:37):
Well, that's our expectation. We've updated our view to include
a fifty basis point cut in October, worth remembering that
they actually considered cutting by fifty basis points back in
August and ultimately they decided not to. Since then, we've
had that shocker GDP report where it's showing that the
economy was actually in worse shape than what they thought.
(02:58):
So to our mind that that makes a fifty basis
point cut more likely.
Speaker 1 (03:03):
Of more interests perhaps will be what they do in November.
Speaker 2 (03:08):
Yeah, so we have another meeting at the end of November,
and then there's a big break until the next meeting,
which doesn't happen until sort of the middle of February
next year. So the question is do they have a
little bit more stimulus over that Christmas period just in
case it's needed. I suspect they probably will. We've got
a twenty five basis point cut cancled in for November
(03:31):
as well. We sort of always expected that to be
the case, and now we've added in that extra big
cut in October because of the poor GDP figures.
Speaker 1 (03:41):
So we're currently sitting at three percent. We take off
fifty basis points for October and then another twenty five
in November. That gets us down to two point twenty
five percent. Could we potentially go again in February and
get down to two percent, because let's face it, a
few months ago, no one was ever picking that.
Speaker 2 (04:02):
Yeah, we may, we may do. I still think that
that's less likely than remaining at two point twenty five
And the reason why is because we are seeing some
signs of a little bit of an upturn in some
sectors of the economy. So household consumption, which is a
really important part of the economy, has grown for the
last two quarters in a row. We are seeing rise
(04:25):
and consumer confidence, we have seen a recovery in business confidence.
And the other thing we've got to remember as well
is that there's a huge stock of mortgages out there
in New Zealand that will be resetting from higher interest
rates onto lower interest rates over the next six months.
So almost half of the total mortgage book in New Zealand.
So that's going to be a big cash flow boost
(04:48):
to the household sector and we would expect that to
drive economic growth in the months ahead.
Speaker 1 (04:54):
So if you're a fan, and I know you're going
to duck the cover on this one, but I think
it's an important question if you're a farmer, business person
or a homeowner coming off a fixed rate, now, do
you fix now or do you just sit on floating
and see what happens? Because are some of these fixed
deals going to get better over the next few weeks
(05:15):
or months.
Speaker 2 (05:17):
Well, I guess it's a question of how much risk
are you are you happy to take? So you know,
everyone will have a different risk tolerance, and they'll have
different sensitivities, you know, a different sleep at night factor
on how much change in interest rates they're they're willing
to wear. Our view is that we might see a
(05:37):
little bit of a creep lower in six rates over
the next few months. But having said that, we are
looking at this this expected stimulus where people are resetting
on the lower variable rates to charge up the economy,
and usually when the economy starts gathering pace, you would
(05:58):
start to see fixed rates drifting higher. So maybe a
little bit more of a dip, but then higher after
that is probably our thoughts.
Speaker 1 (06:05):
A couple to finish on your Reserve Bank came out
yesterday and perhaps stated the obvious. Don't expect prices to
go back to pre COVID levels. No surprise there.
Speaker 2 (06:15):
No, I don't think so. They are kind of stating obvious.
But it does take people back a little bit because
what they're saying is that you need to differentiate between
the rate of change of prices and the level of prices.
So in Australia, we're close to the inflation target two
and a half percent, but that means prices going up
(06:36):
two and a half percent every year. So when we
say we've got inflation under control, that doesn't mean the
prices are going to go back down to what they
were before. It just means that they're going to be
increasing more slowly in the future.
Speaker 1 (06:49):
And let's just finish on your Prime minister elbow. He's
getting the elbow the cold shoulder yet again from the Trumpster.
Speaker 2 (06:58):
Yeah, it seems to be really triating for our later
score a meeting with Donnie Trump. He's been trying for
months and months. He got sidelined a little bit of
the G twenty meeting and now at the United Nations,
and unfortunately for him, it's become a bit of a thing.
The media really drums it up in Australia, so yeah,
it's I guess a little bit uncomfortable for the Prime Minister.
Speaker 1 (07:21):
Are you a rugby fan.
Speaker 2 (07:24):
I don't really follow it that much, to be honest,
I'm more of a cricket fan.
Speaker 1 (07:27):
You realize there's a Bledder's Load Cup game on Saturday
and Auckland a very important one. You haven't won there
since nineteen eighty six.
Speaker 2 (07:35):
Oh is that right?
Speaker 1 (07:36):
Yeah, well, I'm wasting my time with my rugby trivia
on you Ben.
Speaker 2 (07:41):
Yeah, well, I know it's a point of prize for
New Zealanders. I have heard that the Wallabies are getting better,
but I'm not sure that we're good enough yet to
win in New Zealand.
Speaker 1 (07:50):
Well you're not going too badly anyhow. I'm going to
talk to an Assie, a former manager of the Wallabies,
who knows a bit more about footy than you do.
But thankfully you know plenty about the economy. As a
good macro straateagists should have been picked in out of
Rabobank's Sydney office. Thank you very much for your time
today on the country to chaining
Let's head to Sydney. Ben Pickton as a macro strategist
and Layman's terms, that's kind of like a senior economist
for Rabobank, Ben intrast rates. We had a zero point
nine percent fall in GDP last week. It's changed the
environment or the outlook for interest rates. How low can
(00:20):
we go? Yeah?
Speaker 2 (00:22):
Good, Jamie.
Speaker 1 (00:23):
Yeah.
Speaker 2 (00:23):
The GDP report that came out, it was I think
fair to say it was a shocker, really bad number,
negative point nine percent to the quarter, and especially in
the context of what the rbn zaid was expecting. So
they were expecting the economy to shrink, but only by
zero point three percent, so it's quite a big miss.
(00:45):
The economy was performing worse than expected in the second
half of the year, and as a result, our view,
certainly in the view of many other banks I'm seeing,
is that the RBNZ is probably going to do more
to try to port the economy to get demand moving again,
because the gap between demand and supply is now wider
(01:07):
than they thought. Demand is further below supply than what
they previously thought, and that opens up risks for unemployment
and also for inflation sort of persistently undershooting their target has.
Speaker 1 (01:20):
The Reserve Bank completely cocked this up. The cure is
much worse than the original disease.
Speaker 2 (01:27):
Well, I guess there's going to be different views on that.
It depends whether you think inflation is worse than recession.
I guess if you if you lose your job in
a recessions, that's disastrous. If you have high rates of
inflation over the long term, It's maybe not immediately disastrous
as long as you're holding on to your job, but
(01:49):
it is corrosive to the economy over the longer term.
It does make things a lot harder for households than businesses.
So the RBNZ has an inflation mandate that has agreed
with the government. They're making policy according to their mandate.
In one sense, they've achieved their mandate. They've got inflation
(02:10):
back under control. But yeah, but at what costs?
Speaker 1 (02:13):
Right here, let's have a look October the HiT's the
OCR or the Reserve Bank meet again. They'll do their
OCR review and it's going to be good. A former
stable mate of yours, Hailey moynihan. All these days, Hailey
Gorley is going to be on that Monetary Policy Committee.
We talked to Hailey on yesterday's show. Look, it's as
sure as night follows day. They're going to drop fifty
(02:34):
basis points, aren't they.
Speaker 2 (02:37):
Well, that's our expectation. We've updated our view to include
a fifty basis point cut in October, worth remembering that
they actually considered cutting by fifty basis points back in
August and ultimately they decided not to. Since then, we've
had that shocker GDP report where it's showing that the
economy was actually in worse shape than what they thought.
(02:58):
So to our mind that that makes a fifty basis
point cut more likely.
Speaker 1 (03:03):
Of more interests perhaps will be what they do in November.
Speaker 2 (03:08):
Yeah, so we have another meeting at the end of November,
and then there's a big break until the next meeting,
which doesn't happen until sort of the middle of February
next year. So the question is do they have a
little bit more stimulus over that Christmas period just in
case it's needed. I suspect they probably will. We've got
a twenty five basis point cut cancled in for November
(03:31):
as well. We sort of always expected that to be
the case, and now we've added in that extra big
cut in October because of the poor GDP figures.
Speaker 1 (03:41):
So we're currently sitting at three percent. We take off
fifty basis points for October and then another twenty five
in November. That gets us down to two point twenty
five percent. Could we potentially go again in February and
get down to two percent, because let's face it, a
few months ago, no one was ever picking that.
Speaker 2 (04:02):
Yeah, we may, we may do. I still think that
that's less likely than remaining at two point twenty five
And the reason why is because we are seeing some
signs of a little bit of an upturn in some
sectors of the economy. So household consumption, which is a
really important part of the economy, has grown for the
last two quarters in a row. We are seeing rise
(04:25):
and consumer confidence, we have seen a recovery in business confidence.
And the other thing we've got to remember as well
is that there's a huge stock of mortgages out there
in New Zealand that will be resetting from higher interest
rates onto lower interest rates over the next six months.
So almost half of the total mortgage book in New Zealand.
So that's going to be a big cash flow boost
(04:48):
to the household sector and we would expect that to
drive economic growth in the months ahead.
Speaker 1 (04:54):
So if you're a fan, and I know you're going
to duck the cover on this one, but I think
it's an important question if you're a farmer, business person
or a homeowner coming off a fixed rate, now, do
you fix now or do you just sit on floating
and see what happens? Because are some of these fixed
deals going to get better over the next few weeks
(05:15):
or months.
Speaker 2 (05:17):
Well, I guess it's a question of how much risk
are you are you happy to take? So you know,
everyone will have a different risk tolerance, and they'll have
different sensitivities, you know, a different sleep at night factor
on how much change in interest rates they're they're willing
to wear. Our view is that we might see a
(05:37):
little bit of a creep lower in six rates over
the next few months. But having said that, we are
looking at this this expected stimulus where people are resetting
on the lower variable rates to charge up the economy,
and usually when the economy starts gathering pace, you would
(05:58):
start to see fixed rates drifting higher. So maybe a
little bit more of a dip, but then higher after
that is probably our thoughts.
Speaker 1 (06:05):
A couple to finish on your Reserve Bank came out
yesterday and perhaps stated the obvious. Don't expect prices to
go back to pre COVID levels. No surprise there.
Speaker 2 (06:15):
No, I don't think so. They are kind of stating obvious.
But it does take people back a little bit because
what they're saying is that you need to differentiate between
the rate of change of prices and the level of prices.
So in Australia, we're close to the inflation target two
and a half percent, but that means prices going up
(06:36):
two and a half percent every year. So when we
say we've got inflation under control, that doesn't mean the
prices are going to go back down to what they
were before. It just means that they're going to be
increasing more slowly in the future.
Speaker 1 (06:49):
And let's just finish on your Prime minister elbow. He's
getting the elbow the cold shoulder yet again from the Trumpster.
Speaker 2 (06:58):
Yeah, it seems to be really triating for our later
score a meeting with Donnie Trump. He's been trying for
months and months. He got sidelined a little bit of
the G twenty meeting and now at the United Nations,
and unfortunately for him, it's become a bit of a thing.
The media really drums it up in Australia, so yeah,
it's I guess a little bit uncomfortable for the Prime Minister.
Speaker 1 (07:21):
Are you a rugby fan.
Speaker 2 (07:24):
I don't really follow it that much, to be honest,
I'm more of a cricket fan.
Speaker 1 (07:27):
You realize there's a Bledder's Load Cup game on Saturday
and Auckland a very important one. You haven't won there
since nineteen eighty six.
Speaker 2 (07:35):
Oh is that right?
Speaker 1 (07:36):
Yeah, well, I'm wasting my time with my rugby trivia
on you Ben.
Speaker 2 (07:41):
Yeah, well, I know it's a point of prize for
New Zealanders. I have heard that the Wallabies are getting better,
but I'm not sure that we're good enough yet to
win in New Zealand.
Speaker 1 (07:50):
Well you're not going too badly anyhow. I'm going to
talk to an Assie, a former manager of the Wallabies,
who knows a bit more about footy than you do.
But thankfully you know plenty about the economy. As a
good macro straateagists should have been picked in out of
Rabobank's Sydney office. Thank you very much for your time
today on the country to chaining
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