1 00:00:00,120 --> 00:00:01,880 Speaker 1: Back to the Reserve Bank and the state of the economy. 2 00:00:01,920 --> 00:00:04,680 Speaker 1: Inflation partly under control, non tradea will still a problem. 3 00:00:04,880 --> 00:00:07,600 Speaker 1: Fifty point cuts another one likely in February, on our 4 00:00:07,640 --> 00:00:09,840 Speaker 1: way to a neutral number of about three percent by 5 00:00:09,840 --> 00:00:12,639 Speaker 1: the middle of next year. The RB's Associate Governor, Karen 6 00:00:12,680 --> 00:00:15,319 Speaker 1: Silk is with us. Good morning, Good morning, mate. I 7 00:00:15,400 --> 00:00:17,000 Speaker 1: was surprised to us surprised. We had a lot of 8 00:00:17,000 --> 00:00:19,959 Speaker 1: things yesterday in the press conference, the seventy five points, 9 00:00:20,680 --> 00:00:22,919 Speaker 1: how little consideration was given to that. 10 00:00:25,079 --> 00:00:29,360 Speaker 2: Yeah, Mike, we consider all potential interest rate changes, but 11 00:00:29,800 --> 00:00:33,680 Speaker 2: we quickly settled on fifty basis point cut being the 12 00:00:33,720 --> 00:00:38,159 Speaker 2: most appropriate fit at this point to support both our 13 00:00:38,200 --> 00:00:42,640 Speaker 2: primary inflation and secondary obviously our secondary objectives, and it's 14 00:00:42,680 --> 00:00:48,479 Speaker 2: all about charting a steady course of action and around 15 00:00:48,479 --> 00:00:54,440 Speaker 2: what best enables that. The fifty point basis recognizes that 16 00:00:54,880 --> 00:01:01,280 Speaker 2: wonderful news inflation headline inflation is back within the target range, 17 00:01:01,360 --> 00:01:04,240 Speaker 2: and we have a pretty good level of confidence about 18 00:01:04,280 --> 00:01:07,240 Speaker 2: that remaining there. But it's got under the over in 19 00:01:07,360 --> 00:01:10,800 Speaker 2: terms of how we've managed to get there. On the 20 00:01:10,800 --> 00:01:15,640 Speaker 2: one hand, you've got weak global growth, lower inflation off 21 00:01:15,720 --> 00:01:20,679 Speaker 2: shore that's leading to lower import prices, which is good news. 22 00:01:21,080 --> 00:01:25,800 Speaker 2: On the other hand, domestic inflation, that's well, that's coming down, 23 00:01:26,000 --> 00:01:28,640 Speaker 2: that's still sitting outside of the target range, and so 24 00:01:28,680 --> 00:01:30,920 Speaker 2: we're still you know, we're still looking for that to 25 00:01:30,959 --> 00:01:33,600 Speaker 2: come back at least to the top end of the range, 26 00:01:33,640 --> 00:01:36,000 Speaker 2: which is where it's historically sat. 27 00:01:36,400 --> 00:01:39,000 Speaker 1: Do you think it will because Transpower were given clearance 28 00:01:39,080 --> 00:01:41,920 Speaker 1: the other day to raise six billion dollars, all of 29 00:01:41,920 --> 00:01:44,360 Speaker 1: which will be inflationary. As long as that's going on, 30 00:01:44,440 --> 00:01:46,520 Speaker 1: then you get insurance, then you get the councils. As 31 00:01:46,560 --> 00:01:49,280 Speaker 1: long as that's going on, non tradable's going nowhere fast, 32 00:01:49,360 --> 00:01:49,560 Speaker 1: is it? 33 00:01:50,280 --> 00:01:54,880 Speaker 2: Yeah? Yeah, Look, there's definitely a mix of things. There 34 00:01:54,920 --> 00:01:58,600 Speaker 2: is some persistence in domestic inflation from you know, what 35 00:01:58,680 --> 00:02:03,000 Speaker 2: we would recall what would refer to as items that 36 00:02:03,120 --> 00:02:09,360 Speaker 2: are a little less responsive to monetary policy, and you know, 37 00:02:09,440 --> 00:02:12,079 Speaker 2: but there are also some things in there that are 38 00:02:12,120 --> 00:02:14,280 Speaker 2: just slow moving, and you know, rents is a good 39 00:02:14,280 --> 00:02:18,040 Speaker 2: example of that. But as you say, there are things 40 00:02:18,080 --> 00:02:22,880 Speaker 2: like insurance and rates and so you know, those are 41 00:02:23,000 --> 00:02:26,119 Speaker 2: kind of things that will tend to also hold domestic 42 00:02:26,160 --> 00:02:30,119 Speaker 2: inflation towards that higher end of the range as well. 43 00:02:30,320 --> 00:02:33,079 Speaker 1: Four point twenty five fifty all things being equal, coming 44 00:02:33,120 --> 00:02:34,840 Speaker 1: in February years suit, you got one hundred and twenty 45 00:02:34,840 --> 00:02:36,280 Speaker 1: five points to get rid of by the middle of 46 00:02:36,360 --> 00:02:39,120 Speaker 1: next year, So that's another fifty in twenty five. Is 47 00:02:39,160 --> 00:02:40,920 Speaker 1: that roughly how it will play out. 48 00:02:41,760 --> 00:02:45,360 Speaker 2: Yeah. So what we've indicated in our track based on 49 00:02:45,440 --> 00:02:48,880 Speaker 2: the economic conditions that we're looking at today and our 50 00:02:48,919 --> 00:02:52,480 Speaker 2: forecast for next year, we're looking for more carts earlier 51 00:02:52,600 --> 00:02:55,560 Speaker 2: in the earlier part of next year, and then are 52 00:02:55,639 --> 00:02:57,720 Speaker 2: gradual tapering off over the years. 53 00:02:58,080 --> 00:03:01,160 Speaker 1: When you talk about productivity as you did yesterday, how 54 00:03:01,200 --> 00:03:02,839 Speaker 1: worried are you about the brain train? 55 00:03:04,840 --> 00:03:09,600 Speaker 2: Oh? Yeah, migrations definitely up. 56 00:03:10,919 --> 00:03:14,600 Speaker 1: And yeah, but the problem is they're all leaving and 57 00:03:14,680 --> 00:03:16,920 Speaker 1: fewer and fewer people are coming in, and the chances 58 00:03:16,919 --> 00:03:18,640 Speaker 1: are we're going to be going backwards. None of that 59 00:03:18,639 --> 00:03:21,160 Speaker 1: can be good for the economy, can it. Yeah. 60 00:03:21,280 --> 00:03:24,800 Speaker 2: So there's two things. You know, you'll have seen that 61 00:03:24,800 --> 00:03:31,079 Speaker 2: there's a we lowered our growth outlooks for the economy. 62 00:03:31,680 --> 00:03:33,160 Speaker 1: Is that because of that, By the way. 63 00:03:33,840 --> 00:03:38,360 Speaker 2: There's truths there well population growth, So we lowered our 64 00:03:38,560 --> 00:03:42,000 Speaker 2: estimates of future population growth sitting in there, so that 65 00:03:42,040 --> 00:03:46,040 Speaker 2: has some impact. The second impact to it was as 66 00:03:46,200 --> 00:03:50,480 Speaker 2: our assessment of productivity, and New Zealand's productivity levels are low. 67 00:03:51,480 --> 00:03:54,960 Speaker 2: We have businesses that tend to focus on hiring labor 68 00:03:55,760 --> 00:04:01,320 Speaker 2: rather than doing the upstrame investment in capital that may 69 00:04:01,680 --> 00:04:04,240 Speaker 2: you know that will help help us do things quicker 70 00:04:04,240 --> 00:04:08,680 Speaker 2: and faster. When you have low productivity levels, your potential 71 00:04:08,760 --> 00:04:09,840 Speaker 2: growth is lower. 72 00:04:09,960 --> 00:04:12,720 Speaker 1: So that is what The other driver are those two 73 00:04:12,760 --> 00:04:14,839 Speaker 1: things that you can't daw bone. You wish you could, 74 00:04:14,840 --> 00:04:17,320 Speaker 1: but you can't. So one is the productivity. We've had 75 00:04:17,320 --> 00:04:19,560 Speaker 1: this discussion for decades in this country. We were just 76 00:04:19,600 --> 00:04:21,919 Speaker 1: no good at it. The other one Adrian reference getting 77 00:04:21,920 --> 00:04:24,039 Speaker 1: money out of housing and into something else that doesn't 78 00:04:24,040 --> 00:04:26,560 Speaker 1: happen either. Are you frustrated by that? 79 00:04:28,800 --> 00:04:31,320 Speaker 2: I think most of New Zealanders should be frustrated by that. 80 00:04:31,440 --> 00:04:36,159 Speaker 2: Mike productivity. There are things New Zealand can do about that. 81 00:04:36,640 --> 00:04:40,279 Speaker 2: A lot of those things don't fit within the Reserve 82 00:04:40,360 --> 00:04:44,560 Speaker 2: Banks wheelhouse. You know, there are certainly things that need 83 00:04:44,640 --> 00:04:47,640 Speaker 2: to happen to think about, improvement of access to capital, 84 00:04:48,480 --> 00:04:57,480 Speaker 2: improvements in willingness for businesses to adopt the pace of technology, faster, 85 00:04:57,600 --> 00:05:00,440 Speaker 2: investment in R and D, all those good things. Education. 86 00:05:00,600 --> 00:05:03,400 Speaker 2: We need our education up all of those things will 87 00:05:03,480 --> 00:05:10,320 Speaker 2: drive that's outside of our outside of our wheelhouse house prices. Look, 88 00:05:10,440 --> 00:05:14,480 Speaker 2: interest rates do impact on that. We are forecasting a 89 00:05:14,560 --> 00:05:18,920 Speaker 2: bounce in house prices through next year off the back 90 00:05:19,000 --> 00:05:22,839 Speaker 2: of lower interest rates, but we're not expecting that to 91 00:05:22,920 --> 00:05:28,080 Speaker 2: be a significant growth story moving forward. There are things 92 00:05:28,160 --> 00:05:32,040 Speaker 2: that initiatives that the government's talking about which will increase 93 00:05:32,920 --> 00:05:35,839 Speaker 2: there creates the ability to impress the supply of housing. 94 00:05:35,880 --> 00:05:39,800 Speaker 2: We definitely need to see that to stop that cyclical case. 95 00:05:39,920 --> 00:05:43,480 Speaker 2: And on our side, the introduction of depth and some 96 00:05:43,760 --> 00:05:48,599 Speaker 2: ratios sure that over time helps move the cycle right 97 00:05:48,640 --> 00:05:49,039 Speaker 2: as well. 98 00:05:49,400 --> 00:05:51,640 Speaker 1: I've never talked to you before, so it's an apt 99 00:05:51,680 --> 00:05:54,280 Speaker 1: time to ask the question. Given that we've had three recessions, 100 00:05:54,320 --> 00:05:57,560 Speaker 1: most likely three recessions in two years, do you carry 101 00:05:57,720 --> 00:06:00,640 Speaker 1: personal responsibility and feel bad for what you've done to 102 00:06:00,680 --> 00:06:01,239 Speaker 1: this country? 103 00:06:02,680 --> 00:06:06,040 Speaker 2: Do I feel bad? Look, the best thing that we 104 00:06:06,080 --> 00:06:09,800 Speaker 2: can do is ensure that there's price stability in this economy. 105 00:06:09,839 --> 00:06:12,000 Speaker 2: So low stable inflation is the best thing that we 106 00:06:12,040 --> 00:06:17,200 Speaker 2: can do for economic wellbeing. Monetary policy has been proven 107 00:06:17,560 --> 00:06:21,359 Speaker 2: to be the best thing to support that, and that 108 00:06:21,520 --> 00:06:25,599 Speaker 2: is meant that we have had to undertake actions through 109 00:06:25,680 --> 00:06:28,920 Speaker 2: restriction of monetary policy to get ourselves back will to 110 00:06:28,920 --> 00:06:31,640 Speaker 2: get New Zealand back into a position we have low 111 00:06:31,680 --> 00:06:32,520 Speaker 2: stable inflation. 112 00:06:33,839 --> 00:06:36,080 Speaker 1: You're giving me the reserve bank line, Karen, I'm talking 113 00:06:36,120 --> 00:06:38,720 Speaker 1: about all the other reserve banks that haven't had three recessions. 114 00:06:38,760 --> 00:06:40,560 Speaker 1: You guys have cocked it up worse than others. Does 115 00:06:40,600 --> 00:06:41,800 Speaker 1: that make you feel bad? 116 00:06:42,920 --> 00:06:44,920 Speaker 2: I don't think we have cocked it up, Mike. I 117 00:06:44,920 --> 00:06:47,880 Speaker 2: think what we've done is respond to the conditions that 118 00:06:47,920 --> 00:06:51,320 Speaker 2: we have. There are things that are different about this economy. 119 00:06:52,160 --> 00:06:54,359 Speaker 2: If you want to compare us to the US, the 120 00:06:54,520 --> 00:06:57,200 Speaker 2: big difference between New Zealand and the US is our 121 00:06:57,279 --> 00:07:02,640 Speaker 2: productivity levels results. We can do things. We can grow 122 00:07:02,720 --> 00:07:07,680 Speaker 2: without creating capacity pressures which lead to inflation. So we're 123 00:07:07,720 --> 00:07:10,360 Speaker 2: responding to the conditions that we have here in New Zealand. 124 00:07:10,520 --> 00:07:13,679 Speaker 1: Appreciate your time, Karen Silk, who is the Associate Governor 125 00:07:13,760 --> 00:07:16,880 Speaker 1: of the Reserving For more from the My Asking Breakfast, 126 00:07:17,040 --> 00:07:20,360 Speaker 1: listen live to news talks that'd be from six am weekdays, 127 00:07:20,600 --> 00:07:22,640 Speaker 1: or follow the podcast on iHeartRadio.