Brad Olsen: Infometrics principal economist on the Reserve Bank cutting the OCR to 3 percent

The Reserve Bank today moved to cut the OCR by 25 basis points to 3 percent, sparking debate among experts.

While economists priced in a cut, some anticipated a 50 basis point cut - and the monetary policy committee was reportedly divided on the matter.

Infometrics principal economist Brad Olsen joined the Afternoons team to explain whether future cuts are on the cards.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
The Reserve Bank has cut the official cash rate by
twenty five basis points to a three year low of
three percent. To discuss this further, we're joined by Brad Olsen.
He's a friend of the show, and he's also the
CEO of Infometrics. Brad, get a tou.

Speaker 3 (00:31):
Good afternoon, Brad.

Speaker 4 (00:33):
Did they go hard enough? Wouldn't have you know? Fifty
points would have put some much needed juice into the economy,
wouldn't it have?

Speaker 3 (00:40):
It would have to be fair. They actually did consider
going by fifty. They took a vote by four to two.
They decided to cut by twenty five rather than fifty.
Let's be clear, though, that was very well anticipated. We
all thought we were getting the twenty five, so tick
on that box. But by making that expectation that you
could see or that there were votes on the committee
to go even harder, that does send a strong enough

(01:02):
signal that hey, they've probably got a bit further to go.
Most expectations now seem to be shifting. People were thinking
maybe two point seventy five was now the bottom. We
had metrics this afternoon. We've changed our pick to now
expecting a further cut in both October and November, taking
their official cash rate down to two point five percent.
So we've done a lot of the heavy lifting, but

(01:23):
there still might be a little bit more relief on
the way.

Speaker 2 (01:26):
You mentioned that vote four to two. Do we get
to know which way and who votes for which option brand?
That would be nice to know information or is it
all anonymous?

Speaker 3 (01:36):
It is all anonymous as much as I would also
like the gossip to sort of understand it because as
well one member of the committee, they didn't vote this way,
but they did am and r about it. Of actually
doing nothing this time, it's sort of, you know, holding
things steady. So there's clearly a bit of diversity of
view out there. What's interesting is it's not just our
central bank doing this either. You look at a number
of central banks around the world, the Australian one in

(01:58):
the last couple of months at one point they had
a divided vote. I think the UK also had a
divided vote recently. So there's a lot of uncertainty out
there over how much more do you need to do?
And I think the big one for decision makers at
the moment is the timing delays because by the time
this official cash rate cut that we got today actually
hits the numbers in about a year's time. Because it

(02:20):
takes that long for everyone to refix. You could see
a lot of the interest rate cuts that have already
happened be hitting people's back pockets. They'll have lower mortgages
and they might be spending more. So there is a
lot of sort of timing questions going on, and I
think unfortunately a little bit of patience for those lower
interest rates to actually be affecting people's back pockets and

(02:40):
what they spend on. So it's all about timing, and
so far it's difficult to pin that down.

Speaker 4 (02:45):
But patience is the problem because we need an economic
turnaround right now. You know, we need things to happen today.
And look, you know that twenty five basis points, as
you said, was well, we knew that well in advance,
so you know everyone's already the banks have already factored
that in. So does it actually give any juice into
the economy just twenty five basis points?

Speaker 3 (03:08):
Oh yes, and no. The thing is is that economic
conditions today, economic conditions next month. They were sort of set.
The conditions for that were set a year ago. Like
even if the Reserve Bank cut one hundred basis points today,
you wouldn't see that filter through immediately because every you know,
you've got a large number of households out there that
are either hevery fixed in the last couple of months
or might still be refixing in the next couple But

(03:30):
it doesn't sort of hit as immediately as everyone sort
of wants or expects, So there is always this sort
of persistent timing piece. What I think we're seeing a
bit more of is that the second quarter of the
year April through June that was a bit more lackluster.
You saw the tariffs sort of make everyone freeze in place.
No one was confident, everyone was uncertain. But some of
the partial data for July shows a little bit more.

(03:53):
You've seen manufacturing that's ticked up, spending that's ticked up,
So we're hoping to see a little bit more of
that momentum coming through. It is a slow recovery, but
it is a recovery nonetheless. But you're right, everyone wants
a whole lot more. I'm not sure we can get
there a whole lot quicker without destabilizing something out the
other end. Because equally, if you had, you know, some
bigger cuts, that send a pretty strong signal that we

(04:15):
haven't got control of the economy at the moment, and
I'd worry it could reverse out the other way. So
we've got to be a bit careful with how quick
we move.

Speaker 4 (04:22):
Yeah, my go hard or go home attitude is why
I'm not the Reserve Bank governor. Hey, now, Brad Olson,
CEO of Infometrics, as part of the problem that we
seem to have this much talked about two speed economy
with the regions doing well from the experts, but the
city's being sort of hit by property downturn and various

(04:43):
problems with hospo, is that part of the problem for them,
that they're trying to balance those two economies.

Speaker 3 (04:49):
Yeah, that's absolutely true, And look at it the metrics.
We've got some numbers actually coming up tomorrow that sort
of puts that in stark relief. The challenge as well,
though it's not even a two speed economy, it's just
that everything's very bitsy. You know, different parts of rural
and provincial centers seem to be going better, but not everywhere.
You've got some parts of tourism that are fire, others aren't.

(05:09):
Some parts of construction that are going all right, but
a lot of others that are really struggling to find activity.
So I think it's just that the economy sort of
moving in fits and starts at the moment, and for
a lot of businesses, what do you plan around with that?
You know, it's very very difficult to know exactly what
you're going to see what the pipeline of activity and
sales is. So yeah, everyone at the moment trying to
figure out effectively still what the new Goldilock zone is

(05:32):
going to be for the economy, and we're clearly not
there yet.

Speaker 4 (05:35):
Well, inflation is what two point seven percent right now?

Speaker 3 (05:38):
Is that correct? That's right?

Speaker 4 (05:41):
So surely we can run the crank up to two
point nine and see what we can keep going with
the juice in the economy. But thank you so much
for talking to us today, Brad.

Speaker 2 (05:54):
Brilliant, Thanks Tom great insights. That is Brad Olson, the
CEO of Inframetrics.

Speaker 1 (05:59):
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