1 00:00:00,000 --> 00:00:02,280 Speaker 1: Of course, the new Reserve Bank governor's first announcement on 2 00:00:02,320 --> 00:00:05,560 Speaker 1: the OCR is being described as dubvish. New Zealand Herald 3 00:00:05,600 --> 00:00:08,080 Speaker 1: Wellington Business editor g Native Train. He's been looking at 4 00:00:08,080 --> 00:00:10,920 Speaker 1: this and is with us. Now, Hi do you name hi? 5 00:00:11,039 --> 00:00:11,239 Speaker 2: Heather? 6 00:00:11,680 --> 00:00:15,920 Speaker 1: So she seems strangely quite unfazed by the inflation. What 7 00:00:15,960 --> 00:00:16,439 Speaker 1: do you make of that? 8 00:00:18,040 --> 00:00:22,239 Speaker 2: Yeah, that's right. The market was expecting the Reserve Bank 9 00:00:22,280 --> 00:00:24,360 Speaker 2: to be a little bit more worried than it was 10 00:00:24,480 --> 00:00:30,000 Speaker 2: about inflationary pressures coming through. But what the bank did 11 00:00:30,040 --> 00:00:33,840 Speaker 2: instead was to say that it would keep the OCI 12 00:00:33,920 --> 00:00:38,080 Speaker 2: at a sort of accommodative level for some time, provided 13 00:00:38,200 --> 00:00:43,879 Speaker 2: the economy evolved as it expected. So look what that 14 00:00:44,000 --> 00:00:47,040 Speaker 2: means for you and me is that it would seem 15 00:00:47,080 --> 00:00:50,520 Speaker 2: that mortgage and term deposit rates are unlikely to keep 16 00:00:50,600 --> 00:00:54,480 Speaker 2: rising in the near term. Listeners will recall that in 17 00:00:54,480 --> 00:00:57,600 Speaker 2: December and in January those interest rates started going up 18 00:00:58,320 --> 00:01:02,520 Speaker 2: mortgage in term deposit rates. But based on current market pricing, 19 00:01:02,680 --> 00:01:04,640 Speaker 2: and you know how the market has interpreted what the 20 00:01:04,640 --> 00:01:08,920 Speaker 2: Reserve Bank has said, it seems like those rates aren't 21 00:01:08,959 --> 00:01:11,720 Speaker 2: going up anymore for now. At least. 22 00:01:11,959 --> 00:01:14,200 Speaker 1: Somebody has suggested to me that it's a ruse that 23 00:01:14,360 --> 00:01:17,080 Speaker 1: actually they are worried about inflation, are more worried about 24 00:01:17,080 --> 00:01:19,640 Speaker 1: inflation that they than saying. But they can't say that 25 00:01:19,680 --> 00:01:21,920 Speaker 1: out loud because that would be then admitting that November's 26 00:01:21,959 --> 00:01:23,560 Speaker 1: dropping of the ocr was a mistake. 27 00:01:25,400 --> 00:01:27,320 Speaker 2: Oh look, I mean people always sort of you know, 28 00:01:27,360 --> 00:01:29,720 Speaker 2: it's easy to tie yourself in a not over this stuff, 29 00:01:29,800 --> 00:01:33,240 Speaker 2: and central bank speak is kind of a language of 30 00:01:33,280 --> 00:01:36,480 Speaker 2: its own, and markets do read a lot into the 31 00:01:36,520 --> 00:01:40,520 Speaker 2: wording of what people like the governors say. I think 32 00:01:40,920 --> 00:01:43,480 Speaker 2: the challenge here that the Reserve Bank has faced was 33 00:01:43,520 --> 00:01:47,600 Speaker 2: that the market reacted differently to what it expected to 34 00:01:47,640 --> 00:01:50,560 Speaker 2: its November statement. So we talked about this on the 35 00:01:50,560 --> 00:01:54,600 Speaker 2: show in the past. Basically, they didn't expect Christian hawks 36 00:01:54,600 --> 00:01:57,040 Speaker 2: By to close the door to further interest rate cuts 37 00:01:57,160 --> 00:01:59,560 Speaker 2: as much as he did. This caused the market to 38 00:01:59,560 --> 00:02:02,480 Speaker 2: go a bit nuts, quite frankly, start pricing in you 39 00:02:02,520 --> 00:02:06,040 Speaker 2: know o CR hikes throughout this year. You know, that's 40 00:02:06,000 --> 00:02:08,680 Speaker 2: saw banks push up their their mortgage and their term 41 00:02:08,720 --> 00:02:12,799 Speaker 2: deposit rates. Those those fixed rates, those rates rose by 42 00:02:12,880 --> 00:02:15,639 Speaker 2: more than what the Reserve Bank expected. You know, that 43 00:02:15,720 --> 00:02:18,040 Speaker 2: did according to the Reserve Bank, they think that did 44 00:02:18,080 --> 00:02:21,560 Speaker 2: actually stymy economic growth a weeber. You know, those rate 45 00:02:21,720 --> 00:02:24,120 Speaker 2: those rates going up didn't give you know, didn't give 46 00:02:24,200 --> 00:02:28,440 Speaker 2: us much time with rates at quite low levels, you know, 47 00:02:28,520 --> 00:02:31,160 Speaker 2: to just feel a bit better about our mortgages and 48 00:02:31,400 --> 00:02:34,720 Speaker 2: you know, get things going a bit. So I think 49 00:02:35,280 --> 00:02:39,640 Speaker 2: because of this turbulent time, it made sense for the 50 00:02:39,639 --> 00:02:41,480 Speaker 2: Reserve Bank to just say, look, we're just going to 51 00:02:41,600 --> 00:02:44,800 Speaker 2: keep the o CR where it is for some time, 52 00:02:45,440 --> 00:02:48,800 Speaker 2: give the economy sometime to just you know, recover, for 53 00:02:48,880 --> 00:02:51,800 Speaker 2: things to settle down, and then take it from them. 54 00:02:53,280 --> 00:02:55,600 Speaker 2: I must say, I must say, actually the market reaction 55 00:02:55,840 --> 00:02:58,680 Speaker 2: wasn't that big. So swap rates as wholesale interest rates 56 00:02:58,720 --> 00:03:01,320 Speaker 2: did come down a bit. That shows the dubbishness, but 57 00:03:02,160 --> 00:03:06,280 Speaker 2: the reaction wasn't massive, Like, the market wasn't terribly surprised 58 00:03:06,320 --> 00:03:07,280 Speaker 2: by what the Reserve Vank did. 59 00:03:07,360 --> 00:03:09,040 Speaker 1: Did it look to you like she is a little 60 00:03:09,040 --> 00:03:11,320 Speaker 1: bit worried about what's going on with the house prices 61 00:03:11,480 --> 00:03:14,840 Speaker 1: and the effect that that's having on people spending because 62 00:03:14,840 --> 00:03:16,160 Speaker 1: they don't have that wealth effect. 63 00:03:17,760 --> 00:03:21,520 Speaker 2: Yeah, she did raise a really interesting point that in 64 00:03:21,520 --> 00:03:25,680 Speaker 2: New Zealand in the past, when interest rates have gone down, 65 00:03:25,840 --> 00:03:28,680 Speaker 2: house prices have gone up, and when house prices go up, 66 00:03:28,720 --> 00:03:32,440 Speaker 2: we all feel richer people who own houses do. Renters 67 00:03:32,520 --> 00:03:35,880 Speaker 2: get agitated, of course, but homeowners feel better, and you 68 00:03:35,920 --> 00:03:38,600 Speaker 2: know that the mortgage servicing costs are down and they 69 00:03:38,640 --> 00:03:42,200 Speaker 2: spend more. But what's happened now is that those house 70 00:03:42,240 --> 00:03:46,320 Speaker 2: prices have not really gone up, so that wealth effect 71 00:03:46,680 --> 00:03:50,520 Speaker 2: that traditionally has stimulated the economy is not happening. So 72 00:03:50,680 --> 00:03:55,000 Speaker 2: what Anna Breeman said was that in this recovery, we 73 00:03:55,120 --> 00:04:00,160 Speaker 2: are relying more on the labor market strengthening to that 74 00:04:00,200 --> 00:04:03,840 Speaker 2: strength is supporting the economy rather than the wealth effect. 75 00:04:04,160 --> 00:04:07,600 Speaker 2: So the chiefs Poor Conway said that actually that different 76 00:04:07,680 --> 00:04:10,840 Speaker 2: dynamic that they did see that as a risk, you know, 77 00:04:10,920 --> 00:04:13,400 Speaker 2: not because they particularly want house surprices to go up, 78 00:04:13,440 --> 00:04:16,760 Speaker 2: but just because the way things are rolling out is 79 00:04:17,080 --> 00:04:19,000 Speaker 2: a bit different to the way they've rolled out in 80 00:04:19,040 --> 00:04:19,480 Speaker 2: the past. 81 00:04:20,200 --> 00:04:22,680 Speaker 1: Jennay, thanks very much, appreciate your time. Janative Trainey, the 82 00:04:22,720 --> 00:04:25,200 Speaker 1: Herald's Wellington Business editor. Twenty Away from seven 83 00:04:25,880 --> 00:04:29,080 Speaker 2: For more from Heather Duplessy Allen Drive, listen live to 84 00:04:29,160 --> 00:04:32,200 Speaker 2: news talks the'd be from four pm weekdays, or follow 85 00:04:32,240 --> 00:04:34,000 Speaker 2: the podcast on iHeartRadio.