October 8, 2024 • 6 mins
The Official Cash Rate has been cut to 4.75%.
The Reserve Bank's lowered it by 50-basis points from 5.25% in a move predicted by economists.
The bank says inflation's within its 1-3% target range and is converging on the 2% midpoint.
It says economic activity is subdued, with weak business investment and consumer spending.
Herald business editor at large Liam Dann told Matt Heath and Tyler Adams it's good news for borrowers.
He says it's money in the pocket for mortgage holders and for businesses struggling with high debt.
Banks have already begun cutting their home loan and lending rates.
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Episode Transcript
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Speaker 1 (00:09):
You're listening to a podcast from News Talks'd be follow
this and our wide range of podcasts now on iHeartRadio.
Speaker 2 (00:16):
Well, the Reserve Band cams cut the official cash rate
by fifty bases points from five point two five percent
to four point seven five percent. Bank economists had predicted
it but thought a twenty five point drop was just
as likely. So in studio we do have New Zealand
Heeral Business Editor at Large Liam dan get Alam.
Speaker 3 (00:34):
Hey, guys, Lamb, what does this mean for the economy, Well.
Speaker 4 (00:37):
It means it's quite bad. I mean, we were celebrating here,
but they're cutting it because the economy is in terrible shape.
So that's probably worth remembering. But it is probably good
news really for people like me who are fixing their
mortgage next week. So that's sort of money in the
pocket for mortgage holders and a lot of businesses that
are struggling with really high debt levels. So there's two
(01:01):
things for businesses. One is their own debt, you know,
and then the other one is if consumers have a
bit more money in their pocket, they might perk up
and spend a bit more. But yeah, I mean I
think it's a it's a fairly. You know, there was
a lot of expectation that it was going to be
fifteen basis points this time and people would have been disappointed.
Speaker 3 (01:16):
So yeah, how much does that affect the decision? The talk,
because I feel like fifty basis points was just repeated
by everyone. A couple of people said twenty five actually,
and some people said seventy five.
Speaker 2 (01:29):
You said seventy five.
Speaker 3 (01:30):
I was hoping for seventy. It was of a similar
position as you.
Speaker 4 (01:32):
There was one commentator on here on the Herald who
said seventy five and probably did the rounds. But it
shouldn't affect things at all market pricing does. They do
pay attention to market pricing, and the markets are always
very excited about, you know, looking forward, and so there's
a lot of expectation about fifty this time and then
fifty next time in November, going into the summer, you know.
(01:55):
Having I think they've been really tight lipped about that.
They just say they'll watch and do what market conditions require,
no clues as to what's coming up. Yeah, I don't
think that expectations should have too much impact. To be fair,
the bank economists all went fifty, but they all said
(02:15):
it was a lineball call, so they would have been
now going, Oh well, it wasn't such a surprise if
they'd gone the other way. So it's a bit of
a game all of that. To some extent, It.
Speaker 2 (02:22):
Certainly is how fast do you think the banks will
move on this? I know some banks moved pretty early,
which he might have been a bit of a gamble,
maybe not, but well, a marketing ployer.
Speaker 4 (02:31):
I mean, you know, you can see in the meeting
asb put out a statement and cut some rates right
before it, and then they put another one out five
like one minute after that, So you know, there's a
lot of gamesmanship there, and there's a lot of competition.
But yeah, hopefully it passes through. And if the markets
keep pushing towards expectations and more cuts, and the banks
also get money offshore, and the us Fed's expected to
(02:53):
cut again, then we should start to see, you know,
a good chunk of this passed through. They're always a
bit quicker at getting the deposit rates down. Of course,
if you're an older listener and you've got savings, it's
not all good news. And you know, so I'm usually
comfortable there. It does take a while for it to
flow through the economy because people are fixed and they
don't necessarily have their rates coming up next week.
Speaker 3 (03:16):
Yeah, well, I guess an economy's perception, isn't it, And
I'm feeling richer all of a sudden, I'm feeling better off,
so I'll probably spend more. And that's really the thing,
isn't it.
Speaker 1 (03:25):
Well, well, that is it.
Speaker 4 (03:25):
I mean, so it's how much of a bump we
get from that confidence knowing that the direction is right,
Knowing that, okay, it might not be until people are fixing,
and you know, December or whatever, they can still see,
oh there's an extra fifty bucks or extra.
Speaker 1 (03:39):
And see the future.
Speaker 3 (03:40):
You can see that the future looks brighter in terms
of your repaintment.
Speaker 4 (03:44):
So I think you know, we're, at the very least
we're coming out of this awful, long, grinding economic cycled.
You know, through COVID and the inflation. There'll be something
else come along and freak us out soon.
Speaker 3 (03:55):
But Liam, I've got a slightly deeper and potentially more
punishing question. I read your fantastic book Barbecue Economics, I
massively recommended to anyone, and I think I actually sent
you a text on this issue because I still couldn't
understand it. Now, does the official cash rate actually influence
the banks because their money anyway you explain it.
Speaker 4 (04:14):
This is a good question, a good question. It's actually
gets very complicated that when you do when you do
a transaction, you buy or sell anything, usually you know,
it's one bank to another. So the banks to all
these transactions with each other, and at the end of
the night, it doesn't all match up, right, I'm really
paraphrasing this. I hope there's no serious economy something, but yeah,
and so whatever it doesn't match up to, like, they'll
(04:37):
either need to borrow some or you know, to make
it match up. Overnight, so there's an overnight lending rate
and that is set by the Reserve Bank, which effectively
has a state sanctioned monopoly on the wholesale interest rate. Basically,
so the government says, you've got the monopoly on the
wholesale instrate you can set this overnight bank rate. So
whatever that is, that's the lowest rate going in New Zealand.
(04:58):
So the OCIA is the lowest rate going in New Zealand.
Anything else on the top of that is what businesses
decide to do with it.
Speaker 2 (05:04):
So very interesting clear as much for me as a
non economist, but yeah, and it made seems good to
go deep. Yeah that's right, Liam Dan, Thank you very much.
We'll catch you again soon.
Speaker 4 (05:13):
Cool. Thanks guys.
Speaker 2 (05:14):
That is New Zealand here or Business Editor at Large
Liam Dan. Well, I suppose the big question we want
to put to the audience now is how you're feeling.
I mean, Heath, you're ready to go spend some time.
Speaker 3 (05:22):
I'm ready. I'm ready to get loose. I'm ready to
open the purse strings. I'm ready to buy some linen sheets.
I'll be booking into several restaurants. I'll be going loose.
But I've timed it really well. I was talking about
it before. It's kind of like the Ta b and actually,
going back to your book, New Zealand does not all countries,
do you know a lot of countries just float all
the time. But it's quite a thing in New Zealand,
(05:43):
isn't it where we're worried about that. It's we love it.
It's like betting yea and you feel like you're either
win or you lose. And right now I'm feeling like
i made the right decisions. So I've got a huge
amount of dopamine running through the system that I feel
like I've cracked the system.
Speaker 2 (05:58):
I have a big casino night, I have you.
Speaker 3 (06:00):
I'm still working to pay the mortgage constantly, but right
now I feel like I've cracked the system.
Speaker 2 (06:05):
Just a final question for you each year, because Adrian
or made a point that he wanted unemployment to go
up to try and rebalance the economy. So he's pretty
happy at this stage. He's feeling like that those things
are sitting about right, that he can make these carts
and a.
Speaker 4 (06:18):
Monte to go up. But there is a sort of
correlation between unemployment and inflation. They need inflation to go down.
It's all about slack in the economy, you know, really,
it's just and they're removing they remove the slack and
the economy with high interest rates. Now they're letting a
little bit more slack in the economy. But unemployment takes longer.
Those businesses that are struggling, they don't want to sack
people that those decisions tend to be at the end
(06:40):
of the economic cycle. So you probably see that get
a bit worse for a while.
Speaker 3 (06:43):
And of course some inflation is necessary for an economy
to grow.
Speaker 4 (06:48):
Yeah, don't get me started on what happens when prices
start going down. Deflation sounds great, it's not good.
Speaker 3 (06:53):
Start roller coaster. It sounds like New Zealand Citizen.
Speaker 2 (06:57):
Absolutely for more.
Speaker 1 (06:58):
From News Talks'd be listen live on air or online,
and keep our shows with you wherever you go with
our podcasts on iart Radio
You're listening to a podcast from News Talks'd be follow
this and our wide range of podcasts now on iHeartRadio.
Speaker 2 (00:16):
Well, the Reserve Band cams cut the official cash rate
by fifty bases points from five point two five percent
to four point seven five percent. Bank economists had predicted
it but thought a twenty five point drop was just
as likely. So in studio we do have New Zealand
Heeral Business Editor at Large Liam dan get Alam.
Speaker 3 (00:34):
Hey, guys, Lamb, what does this mean for the economy, Well.
Speaker 4 (00:37):
It means it's quite bad. I mean, we were celebrating here,
but they're cutting it because the economy is in terrible shape.
So that's probably worth remembering. But it is probably good
news really for people like me who are fixing their
mortgage next week. So that's sort of money in the
pocket for mortgage holders and a lot of businesses that
are struggling with really high debt levels. So there's two
(01:01):
things for businesses. One is their own debt, you know,
and then the other one is if consumers have a
bit more money in their pocket, they might perk up
and spend a bit more. But yeah, I mean I
think it's a it's a fairly. You know, there was
a lot of expectation that it was going to be
fifteen basis points this time and people would have been disappointed.
Speaker 3 (01:16):
So yeah, how much does that affect the decision? The talk,
because I feel like fifty basis points was just repeated
by everyone. A couple of people said twenty five actually,
and some people said seventy five.
Speaker 2 (01:29):
You said seventy five.
Speaker 3 (01:30):
I was hoping for seventy. It was of a similar
position as you.
Speaker 4 (01:32):
There was one commentator on here on the Herald who
said seventy five and probably did the rounds. But it
shouldn't affect things at all market pricing does. They do
pay attention to market pricing, and the markets are always
very excited about, you know, looking forward, and so there's
a lot of expectation about fifty this time and then
fifty next time in November, going into the summer, you know.
(01:55):
Having I think they've been really tight lipped about that.
They just say they'll watch and do what market conditions require,
no clues as to what's coming up. Yeah, I don't
think that expectations should have too much impact. To be fair,
the bank economists all went fifty, but they all said
(02:15):
it was a lineball call, so they would have been
now going, Oh well, it wasn't such a surprise if
they'd gone the other way. So it's a bit of
a game all of that. To some extent, It.
Speaker 2 (02:22):
Certainly is how fast do you think the banks will
move on this? I know some banks moved pretty early,
which he might have been a bit of a gamble,
maybe not, but well, a marketing ployer.
Speaker 4 (02:31):
I mean, you know, you can see in the meeting
asb put out a statement and cut some rates right
before it, and then they put another one out five
like one minute after that, So you know, there's a
lot of gamesmanship there, and there's a lot of competition.
But yeah, hopefully it passes through. And if the markets
keep pushing towards expectations and more cuts, and the banks
also get money offshore, and the us Fed's expected to
(02:53):
cut again, then we should start to see, you know,
a good chunk of this passed through. They're always a
bit quicker at getting the deposit rates down. Of course,
if you're an older listener and you've got savings, it's
not all good news. And you know, so I'm usually
comfortable there. It does take a while for it to
flow through the economy because people are fixed and they
don't necessarily have their rates coming up next week.
Speaker 3 (03:16):
Yeah, well, I guess an economy's perception, isn't it, And
I'm feeling richer all of a sudden, I'm feeling better off,
so I'll probably spend more. And that's really the thing,
isn't it.
Speaker 1 (03:25):
Well, well, that is it.
Speaker 4 (03:25):
I mean, so it's how much of a bump we
get from that confidence knowing that the direction is right,
Knowing that, okay, it might not be until people are fixing,
and you know, December or whatever, they can still see,
oh there's an extra fifty bucks or extra.
Speaker 1 (03:39):
And see the future.
Speaker 3 (03:40):
You can see that the future looks brighter in terms
of your repaintment.
Speaker 4 (03:44):
So I think you know, we're, at the very least
we're coming out of this awful, long, grinding economic cycled.
You know, through COVID and the inflation. There'll be something
else come along and freak us out soon.
Speaker 3 (03:55):
But Liam, I've got a slightly deeper and potentially more
punishing question. I read your fantastic book Barbecue Economics, I
massively recommended to anyone, and I think I actually sent
you a text on this issue because I still couldn't
understand it. Now, does the official cash rate actually influence
the banks because their money anyway you explain it.
Speaker 4 (04:14):
This is a good question, a good question. It's actually
gets very complicated that when you do when you do
a transaction, you buy or sell anything, usually you know,
it's one bank to another. So the banks to all
these transactions with each other, and at the end of
the night, it doesn't all match up, right, I'm really
paraphrasing this. I hope there's no serious economy something, but yeah,
and so whatever it doesn't match up to, like, they'll
(04:37):
either need to borrow some or you know, to make
it match up. Overnight, so there's an overnight lending rate
and that is set by the Reserve Bank, which effectively
has a state sanctioned monopoly on the wholesale interest rate. Basically,
so the government says, you've got the monopoly on the
wholesale instrate you can set this overnight bank rate. So
whatever that is, that's the lowest rate going in New Zealand.
(04:58):
So the OCIA is the lowest rate going in New Zealand.
Anything else on the top of that is what businesses
decide to do with it.
Speaker 2 (05:04):
So very interesting clear as much for me as a
non economist, but yeah, and it made seems good to
go deep. Yeah that's right, Liam Dan, Thank you very much.
We'll catch you again soon.
Speaker 4 (05:13):
Cool. Thanks guys.
Speaker 2 (05:14):
That is New Zealand here or Business Editor at Large
Liam Dan. Well, I suppose the big question we want
to put to the audience now is how you're feeling.
I mean, Heath, you're ready to go spend some time.
Speaker 3 (05:22):
I'm ready. I'm ready to get loose. I'm ready to
open the purse strings. I'm ready to buy some linen sheets.
I'll be booking into several restaurants. I'll be going loose.
But I've timed it really well. I was talking about
it before. It's kind of like the Ta b and actually,
going back to your book, New Zealand does not all countries,
do you know a lot of countries just float all
the time. But it's quite a thing in New Zealand,
(05:43):
isn't it where we're worried about that. It's we love it.
It's like betting yea and you feel like you're either
win or you lose. And right now I'm feeling like
i made the right decisions. So I've got a huge
amount of dopamine running through the system that I feel
like I've cracked the system.
Speaker 2 (05:58):
I have a big casino night, I have you.
Speaker 3 (06:00):
I'm still working to pay the mortgage constantly, but right
now I feel like I've cracked the system.
Speaker 2 (06:05):
Just a final question for you each year, because Adrian
or made a point that he wanted unemployment to go
up to try and rebalance the economy. So he's pretty
happy at this stage. He's feeling like that those things
are sitting about right, that he can make these carts
and a.
Speaker 4 (06:18):
Monte to go up. But there is a sort of
correlation between unemployment and inflation. They need inflation to go down.
It's all about slack in the economy, you know, really,
it's just and they're removing they remove the slack and
the economy with high interest rates. Now they're letting a
little bit more slack in the economy. But unemployment takes longer.
Those businesses that are struggling, they don't want to sack
people that those decisions tend to be at the end
(06:40):
of the economic cycle. So you probably see that get
a bit worse for a while.
Speaker 3 (06:43):
And of course some inflation is necessary for an economy
to grow.
Speaker 4 (06:48):
Yeah, don't get me started on what happens when prices
start going down. Deflation sounds great, it's not good.
Speaker 3 (06:53):
Start roller coaster. It sounds like New Zealand Citizen.
Speaker 2 (06:57):
Absolutely for more.
Speaker 1 (06:58):
From News Talks'd be listen live on air or online,
and keep our shows with you wherever you go with
our podcasts on iart Radio
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