Francesca Rudkin: Interpreting RBNZ statements has become a bit of an art

So if you get good news, does it matter how the news is delivered?   

When it comes to running the economy, and making decisions about refixing your mortgage, you could argue it does.   

But let’s focus on the surprising, good news yesterday.  For the first time since March 2020, the  Reserve Bank cut the official cash rate by 25 basis points to 5.25%.  The reasoning for the cut is that New Zealand’s annual consumer price inflation is returning to within the Monetary Policy Committee’s 1 to 3% target band – it currently sits at 3.3 - but the indication is it will continue to decrease.    

The Reserve Bank’s released a new forecast rate track that suggests the OCR will fall from here to at least 5% by the end of the year and to at least 4.5% by June next year.  

This morning, Reserve Bank Governor Adrian Orr explained to the Mike Hosking Breakfast why the RBNZ made the decision to lower the OCR...  

“Plenty of time and plenty of information has happened since May, and we've also communicated that as well. You know, we had a July monetary policy statement where we quite clearly showed our level of, growing level of confidence that the monetary policy is working, growing concern that the output is falling quicker than  necessary, and so we moved in August.” 

So, hallelujah. It’s a dose of hope, a ray of sunshine, and the right move, but is it enough of a move to make a difference to you? It depends on your individual circumstances as to whether it makes an impact now – or in a years' time  

The tax cuts have come into play, and OCR is dropping, but we’re also dealing with rising rates, increases in utility bills and hefty insurances bills. So what impact will this news have on your household?   

I am sure that Adrian Orr was excited to finally be announcing a rate cut – but was it communicated well? The news has been overshadowed by frustration and criticism over the way it was delivered.   

Reactions among bank economists were mixed, all agreed the direction of travel for rates is down, and sooner rather than later, and New Zealand’s major banks have moved swiftly in lowering mortgage lending rates, but if you’re a consumer  making decisions about your mortgage, or business loan and had looked to the Reserve Bank to give you an indication of how things were going to progress – you quite rightly might be a little taken aback by this earlier than anticipated move.   

 In February and April, the Reserve Bank reasoned that the OCR would need to remain at a restrictive level for a “sustained period” to ensure inflation returned to the 1-3% target.  

In May, that wording changed – it was slightly softer. “Monetary policy needs to remain restrictive to ensure inflation returns to target within a reasonable timeframe.”  

And in July, things loosened up more with the central bank stating “monetary policy will need to remain restrictive” but that “the extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures”.  

We had been led to believe that we would not see cuts until next year – and I’m not sure this statement has enough detail to make anyone think otherwise.   

This was Adrian Orr defending the communication of the OCR cut to the Mike Hosking Breakfast ... 

“Nothing we do today is going to affect today's inflation, so we're always looking forward. What are we seeing here? We're seeing more spare capacity of the economy taking out some of that inflation pressure and we're seeing global pricing falling and we're seeing business pricing behaviours change dramatically in New Zealand all for the positive, all consistent with one to 3% inflation.” 

The cut is a good move, the RBNZ might have read the economy correctly, but were their intentions clear to you ? Have you been able to read between the lines and make decisions that will allow you to benefit from this cut, and on going cuts over the coming year?   

The news yesterday was a step in the right direction – a new direction, but interpreting RBNZ statements has become a bit of an art. Maybe some pictures would have been helpful after all.   

 

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Episode Transcript

Speaker 1 (00:06):
You're listening to the carrywood of morning's podcast from Newstalk
sed B.

Speaker 2 (00:12):
If you get good news, does it matter how the
news is delivered when it comes to running the economy
and making decisions about refixing your mortgage or managing your
business loan. I would argue it does. But let's focus
on a surprising good news from yesterday. For the first
time since March twenty twenty, the Reserve Bank cut the

(00:32):
official cash rate by twenty five basis points to five
point two five percent. The reasoning for the cut is
that New Zealand's and your consumer price inflation is returning
to within the Monetary Policies Committees one to three percent
target band. It's currently setting at about three point three percent,
but the indication is it is heading towards that target.

(00:53):
The Reserve Banks released a new forecast rate track that
suggests the OCR will fall from here to at least
five percent by the end of the year and to
at least four point five percent by June next year.
This morning, Reserve Bank Governor Adrian Or explained to My
Costing Breakfast why the Reserve Bank has made the decision

(01:16):
to lower the.

Speaker 3 (01:16):
OCR plenty of time and plenty of information has happened
since May, and we've also communicated that as well. You know,
we had a July monetary policy statement where we quite
clearly showed our level of growing level of confidence that
the monetary policy is working, growing concern that the output

(01:37):
is falling quicker than necessary, and so we moved in August.

Speaker 2 (01:45):
So, Hallelulia, it's a dose of hope, array of sunshine
and the right move. But is it enough of the
move to make a difference to you? It depends on
your individual circumstances as to whether it's going to make
an impact now or possibly in a year's time or later.
The tax cuts, of course have come into play and
the ocr is dropping, but we're also dealing with rising

(02:06):
rates and increases in utility bills and hefty insurance bills.
So what impact does this news actually have on your household?
While I am sure that Adrian or was very excited
to finally be announcing a rate cut, was it communicated well?
Had we been given an indication that this was coming.

(02:29):
This news has been overshadowed by frustration and criticism over
the way it has been communicated and delivered. Reaction among
bank economists has been mixed. All agree that the direction
of travel for rates is down and sooner rather than later,
and New Zealand's major banks have moved swiftly in lowering
mortgage lending rates. But if you're a consumer making decisions

(02:52):
about your mortgage or your business loan, and had looked
to the Reserve Bank over the last six months to
give you an indication of how things were going to progress,
you quite rightly might be a little taken aback by
this move, which is definitely earlier than anticipated. In February

(03:13):
and April, the Reserve Bank reasoned that the ocr would
need to remain at a restrictive level for a sustained
period to ensure inflation returned to that one to three
percent target. In May, wording changed was just ever so
slightly softer. Monetary policy needs to remain restrictive to ensure

(03:34):
inflation returns to target within a reasonable time frame. And
in July things loosened up even more, with the Central
Bank stating that monetary policy will need to remain restrictive,
but that the extent of this restraint will be tempered
over time consistent with the expected decline in inflation pressures.

(03:58):
We had been led to believe that we would not
see cuts until next year. I'm not sure these statements
had enough detail to make anyone think otherwise. This was
adrianaw defending the communication over the last six months of
that have led to this ocer cut. This is what
he had to say to the Mike Hosking breakfast this morning.

Speaker 3 (04:19):
Nothing we do today is going to affect Gooday's inflation.
So we're always looking forward. What have we sitting here?
We're seeing more spare capacity of the economy taking out
some of their inflation pressure, and we're seeing global pricing falling,
and we're seeing business pricing behavior has changed dramatically, a

(04:40):
new zonaland all for the positive or consistent with wonder
three percentiflation.

Speaker 2 (04:45):
So the cut is a good move. The Reserve Bank
have read the economy correctly, but were their intentions clear
to you? Have you been able to read between the
lines and make decisions that will allow you to benefit
from this cut and ongoing cuts over the coming year.
The news yesterday a step in the right direction, a
new direction, But interpreting the Reserve Bank state is becoming

(05:07):
a little bit of an art. Maybe some pictures would
have been helpful.

Speaker 1 (05:10):
After all, For more from Kerry Wood and Mornings, listen
live to News Talks at B from nine am weekdays,
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