WEBVTT - RBNZ pivots to potential lower interest rates 0:00:05.761 --> 0:00:10.001 You're listening to the Weekend Collective podcast from News Talks AB. 0:00:10.961 --> 0:00:14.161 Right now, it is time for smart money and we 0:00:14.201 --> 0:00:16.081 want your calls on eight hundred and eighty ten eighty 0:00:16.121 --> 0:00:20.961 text nine two. And our guest is director and fixed 0:00:21.001 --> 0:00:26.121 income and currency strategist from Harbor Asset Management and his 0:00:26.281 --> 0:00:29.401 name is Hamish Pepper. Good Hamish again, good. 0:00:29.161 --> 0:00:31.081 Eton, I'm good, thank you? 0:00:30.881 --> 0:00:34.041 Are you all right? All right? Thanks? So are you 0:00:34.161 --> 0:00:35.321 coming to us from Wellington? 0:00:36.001 --> 0:00:36.881 I am? I am. 0:00:37.121 --> 0:00:39.641 I'm looking out from our office onto the harbor and 0:00:39.681 --> 0:00:41.401 watching the sunset. 0:00:42.441 --> 0:00:44.601 Not too bad sunset already, Oh my goodness, I've just 0:00:44.601 --> 0:00:46.201 looked out. Yes, well, at least you can say it's 0:00:46.241 --> 0:00:47.041 but gray here. 0:00:48.241 --> 0:00:51.001 So actually gray, I don't know. I was trying to 0:00:51.041 --> 0:00:53.201 turn into a theme with sunsets and things. But the 0:00:53.281 --> 0:00:55.281 suns here we go. I've got it, I've got it. 0:00:55.881 --> 0:01:00.521 The sun may be setting on the reserve banks. Harsh 0:01:00.641 --> 0:01:02.921 rhetoric when it comes to what's happening with the cash rate. 0:01:05.241 --> 0:01:07.241 Yes, indeed, yes, finally. 0:01:07.641 --> 0:01:10.041 Finally I like that. That's not a bad metaphor. I'm 0:01:10.081 --> 0:01:10.681 going to go with that. 0:01:10.961 --> 0:01:16.001 But anyway, so, why has it okay? Why is that 0:01:16.081 --> 0:01:17.161 statement true? 0:01:18.281 --> 0:01:22.881 Well, I think we are really seeing the economy hurt now, 0:01:23.241 --> 0:01:26.481 and of course that is what they want, because that's 0:01:26.521 --> 0:01:30.081 the way in which inflation comes back to a lower 0:01:30.401 --> 0:01:31.721 and stable level. 0:01:31.841 --> 0:01:32.841 They want two percent. 0:01:33.601 --> 0:01:36.601 They definitely don't want the numbers that we were seeing 0:01:36.761 --> 0:01:40.521 a year or so ago, and with that they can 0:01:40.601 --> 0:01:43.521 take the foot off the throat, so to speak, of 0:01:43.761 --> 0:01:48.161 the economy and lower interest rates and let us all 0:01:48.201 --> 0:01:52.441 breathe again. Really, they're not quite there yet, but we 0:01:52.521 --> 0:01:55.641 think they are getting very very close to starting to 0:01:55.681 --> 0:01:57.001 reduce interest rates. 0:01:57.001 --> 0:01:59.241 Would you mean they're not quite there yet? What's not 0:01:59.321 --> 0:02:01.401 quite there? You mean the Reserve Bank aren't there? Because 0:02:01.441 --> 0:02:02.761 I think most of us are there. 0:02:03.161 --> 0:02:06.081 Well, yes, indeed, and many of us probably been there 0:02:06.121 --> 0:02:11.321 for months now, looking out the window and hearing stories, 0:02:11.361 --> 0:02:15.441 seeing data which suggests that, you know, those high interest 0:02:15.521 --> 0:02:19.401 rates have been very very effective in sort of hurting 0:02:19.481 --> 0:02:21.961 the economy and taking inflation pressure. 0:02:22.521 --> 0:02:26.761 Out of it. Why are they are so slow, so 0:02:26.801 --> 0:02:27.281 to speak? 0:02:28.361 --> 0:02:35.161 I think there's still a residual concern that they might 0:02:35.241 --> 0:02:40.401 see inflation rear its head again. Inflation inflation expectations what 0:02:40.441 --> 0:02:43.641 people think about in terms of what prices will do. 0:02:43.761 --> 0:02:46.241 So they I think are. 0:02:46.121 --> 0:02:51.041 Trying to balance the observed impact of policy, which is strong. 0:02:51.121 --> 0:02:54.001 You know, we're seeing that with the fact that inflation 0:02:54.641 --> 0:02:58.241 is not quite back to two percent, and therefore there's 0:02:58.281 --> 0:03:02.281 still a risk that perhaps if rate cuts come too soon, 0:03:02.721 --> 0:03:06.041 people then think, oh well, perhaps that might mean that 0:03:06.561 --> 0:03:10.761 inflation can pick up again, and therefore, you know, the 0:03:10.841 --> 0:03:11.641 job's not done. 0:03:11.801 --> 0:03:13.121 Can you can you give. 0:03:13.041 --> 0:03:16.401 Us a description of what of what that what's the 0:03:16.401 --> 0:03:19.001 inflation rating is now three point three percent I think, 0:03:19.081 --> 0:03:19.401 isn't it? 0:03:20.281 --> 0:03:21.921 And how significant to drop is it? 0:03:22.441 --> 0:03:26.321 And what it means in real terms that we can 0:03:26.401 --> 0:03:28.961 understand in terms of tradable and non tradable inflation all that. 0:03:29.761 --> 0:03:31.721 Yeah, I mean, I think we've probably talked a lot 0:03:31.761 --> 0:03:38.001 about that tradeable part of inflation of prices that we're 0:03:38.081 --> 0:03:42.801 seeing in the economy having normalized. We talked about supply 0:03:42.921 --> 0:03:47.441 chains which were heavily disrupted during that COVID time, you know, 0:03:47.521 --> 0:03:52.001 basically goods not being able to flow through the world 0:03:52.321 --> 0:03:55.441 like they normally do, and with that cause the prices 0:03:55.481 --> 0:03:58.961 of those goods to increase. A lot that's now all 0:03:59.001 --> 0:04:01.241 come out of the system. You've actually got you know, 0:04:01.321 --> 0:04:06.041 tradable inflation. For example, here is running negative on the quarter, 0:04:06.121 --> 0:04:10.361 so those prices actually fell on the years. It's pretty 0:04:10.361 --> 0:04:14.041 close to flat to nothing. So that's all good, and 0:04:14.081 --> 0:04:18.321 that's that's sort of been resolved. What's left is this 0:04:18.521 --> 0:04:21.841 sort of stickier what we call non tradable inflation, which 0:04:21.881 --> 0:04:26.201 is generated by the domestic economy and particularly generated by 0:04:26.881 --> 0:04:27.681 the labor. 0:04:27.361 --> 0:04:29.321 Market in terms of wage growth. 0:04:29.681 --> 0:04:33.201 And that bit is still running quite high on a 0:04:33.241 --> 0:04:36.361 quarterly basis. That came in almost one percent on the quarter, 0:04:36.641 --> 0:04:38.961 and it's above five percent annually. 0:04:39.521 --> 0:04:41.681 And so that is the bit that's the niggli. 0:04:41.361 --> 0:04:46.161 Little bit here which is probably driving that just hesitation 0:04:46.761 --> 0:04:50.521 or residual concern that the rbnz'd have about taking rates 0:04:50.561 --> 0:04:53.721 lower too soon or too quickly. 0:04:54.481 --> 0:04:57.721 Yeah, so one of the things I saw on well, 0:04:57.721 --> 0:05:01.161 on Twitter, actually there was a couple of bits to 0:05:01.281 --> 0:05:05.641 camera from Nikola Willison, also Christopher Luckson saying, look, we're 0:05:05.641 --> 0:05:08.081 getting on top of inflation. I just had it without 0:05:08.241 --> 0:05:11.681 I mean, we can get political if you like. Who's 0:05:11.761 --> 0:05:15.561 responsible because that looks like the government taking credit for 0:05:15.601 --> 0:05:18.481 the drop in inflation. Who actually can take the credit 0:05:18.601 --> 0:05:20.481 for inflation coming down? 0:05:21.881 --> 0:05:24.161 I mean, I think it's largely the central bank, the 0:05:24.561 --> 0:05:27.801 zero Bank in New Zealand deserve the credit for inflation falling. 0:05:28.001 --> 0:05:32.681 Of course, you know the global dynamic of supply chains normalizing. Well, 0:05:32.721 --> 0:05:35.001 you know that was about the vaccines and you know 0:05:36.001 --> 0:05:39.721 the world being able to operate again, but that's sort 0:05:39.721 --> 0:05:42.601 of years old now that that story. You know, I 0:05:42.641 --> 0:05:47.281 think the domestic you know, inflation pressures and the fact 0:05:47.321 --> 0:05:49.801 that on a forward looking basis they are looking like 0:05:50.481 --> 0:05:54.201 they are on that track to normalization too, is because 0:05:54.241 --> 0:05:58.281 of how quickly we saw interest rates once they started. 0:05:58.361 --> 0:06:01.081 You know, I think the Arbians themselves would say, you know, 0:06:01.121 --> 0:06:04.321 in hindsight, they probably should have started sooner in terms 0:06:04.361 --> 0:06:07.521 of lifting intrates from the quarter of a percent that 0:06:07.961 --> 0:06:08.921 we started. 0:06:08.521 --> 0:06:09.681 At at the bottom. 0:06:10.441 --> 0:06:14.161 But ultimately that you know, once they got going, they 0:06:14.161 --> 0:06:16.801 did move in quite big increments. We got to five 0:06:16.841 --> 0:06:20.321 and a half percent quite quickly and have been there 0:06:20.361 --> 0:06:23.601 now for some time. You know, those are high intra 0:06:23.641 --> 0:06:27.201 shrates and they are having a large impact and will 0:06:27.241 --> 0:06:30.761 be the main driver that takes out inflation back to 0:06:30.801 --> 0:06:31.361 two per I. 0:06:31.321 --> 0:06:33.121 Guess I was asking how much credit the government can 0:06:33.161 --> 0:06:36.721 take because the reason that Adrian or the Reserve Bank 0:06:36.801 --> 0:06:41.481 had to sort of well, actually actually maybe he was 0:06:41.481 --> 0:06:43.481 to blame in the first place. I'm just trying to remember, 0:06:44.041 --> 0:06:45.921 because there was a lot of government expenditure, of course, 0:06:45.921 --> 0:06:49.241 which this current government has criticized, which was part of 0:06:49.281 --> 0:06:52.281 the picture, I guess. But of course the Reserve Bank, 0:06:52.441 --> 0:06:54.041 who was it that kept cash. 0:06:53.841 --> 0:06:54.881 So cheap for so long? 0:06:55.481 --> 0:06:58.001 Yeah, I mean, and I think that they admit that that, 0:06:58.241 --> 0:07:01.801 you know, like I said there that with hindsight, policy 0:07:02.001 --> 0:07:06.001 was too loose for too long in the Central Bank, 0:07:06.281 --> 0:07:10.801 they recognized that, I think sooner than perhaps government did, 0:07:10.921 --> 0:07:15.041 because on the government side, we kept in place quite 0:07:15.161 --> 0:07:19.401 stimulatory policy things things like wage subsidies, for example, but 0:07:19.481 --> 0:07:23.921 just generally spending was high through a period where the 0:07:23.961 --> 0:07:27.961 economy was actually clearly recovering, so there wasn't the need 0:07:28.681 --> 0:07:32.401 for that stimulus from government and that spending from government. 0:07:32.681 --> 0:07:35.761 And what it's meant is we've now entered a period 0:07:35.801 --> 0:07:38.761 where normally you would think of government being able to 0:07:38.801 --> 0:07:41.241 help out an economy when it's struggling like it is, 0:07:41.281 --> 0:07:44.001 and it's going to struggle more. But of course they're 0:07:44.121 --> 0:07:47.121 very ham strung and limited in terms of what they 0:07:47.121 --> 0:07:51.401 can do because of that sort of residual spend and 0:07:51.441 --> 0:07:54.161 the impact that that's having on the amount of debt, 0:07:54.161 --> 0:07:55.001 for example, that the. 0:07:55.201 --> 0:07:56.401 Government is okay. 0:07:56.481 --> 0:07:59.361 So up, I'm an editor to ask the question again 0:07:59.401 --> 0:08:01.121 now that I've got it clear in my mind. So 0:08:01.361 --> 0:08:04.841 if the government stimulatory sort of approached, the economy went 0:08:04.881 --> 0:08:07.401 on too long, along with the cheap cash from the 0:08:07.481 --> 0:08:10.001 Reserve Bank, and. 0:08:09.841 --> 0:08:11.681 So they played a part in us. 0:08:11.561 --> 0:08:13.601 Needing to get on top of it, how much credit 0:08:13.721 --> 0:08:16.041 can actually the government. I'm not doing this to be mischievous, 0:08:16.041 --> 0:08:17.841 by the way. I'm just quite curious because I was 0:08:17.881 --> 0:08:20.921 amused when I saw Nikola Willis and Christopher Luxon's video 0:08:20.961 --> 0:08:22.921 and I thought to myself, I'm not sure how much. 0:08:22.801 --> 0:08:25.721 Of this is on you? So how much can they 0:08:25.721 --> 0:08:27.041 take credit for I. 0:08:27.281 --> 0:08:31.121 Don't think much at all. And I think also that 0:08:31.681 --> 0:08:34.921 you know, really, if you think of government, regardless of 0:08:35.601 --> 0:08:38.121 the political party, and just think of the role that 0:08:38.161 --> 0:08:40.921 government played through that time, then you know that they 0:08:41.041 --> 0:08:45.641 were a key driver of the inflation that then the 0:08:45.681 --> 0:08:50.921 central Bank had to respond to and is still still 0:08:50.961 --> 0:08:51.721 doing that. 0:08:52.321 --> 0:08:53.481 It's quite fascinating, isn't it. 0:08:53.601 --> 0:08:56.521 I just guess in the end politics, if something's going 0:08:56.521 --> 0:08:58.481 well and you are in government, take credit for it 0:08:58.481 --> 0:09:02.361 as quick as you can. I mean, then maybe they'll 0:09:02.401 --> 0:09:04.401 say that. I don't know what arguments could they mount 0:09:04.441 --> 0:09:06.601 for that. Again, I'm probably pushing the point, but it's 0:09:06.641 --> 0:09:08.921 just fun to get my own head around it, because 0:09:09.081 --> 0:09:12.641 I guess they would say, we've set the tone around 0:09:12.801 --> 0:09:16.041 expenditure which has helped get on top of inflation, and 0:09:17.001 --> 0:09:20.081 Adrian or subtly has has followed the signals that we've 0:09:20.121 --> 0:09:20.641 sent out there. 0:09:20.681 --> 0:09:21.761 Is that an argument they could make? 0:09:22.441 --> 0:09:24.241 Yeah, I mean I think they could. 0:09:25.521 --> 0:09:30.161 You know, it's I find it hard to kind of 0:09:30.201 --> 0:09:32.161 fully buy into it. But the argument that they could 0:09:32.161 --> 0:09:34.121 put forward is, hey, look, we've got a path now 0:09:34.561 --> 0:09:39.801 back towards fiscal balance and indeed fiscal surpluses. We are 0:09:39.841 --> 0:09:44.521 doing that through you know, a reduction and spending over 0:09:44.601 --> 0:09:47.921 that sort of four or five five year period. But 0:09:48.041 --> 0:09:51.721 at the same time they're also introducing tax cuts which 0:09:51.761 --> 0:09:55.321 come live the end of the month, and you know, 0:09:55.401 --> 0:10:02.361 that's something which ultimately slows your ability to balance. 0:10:02.001 --> 0:10:03.281 And keep it under control. 0:10:03.321 --> 0:10:06.441 So actually, why you mentioned that, I mean, how stimulatory 0:10:06.441 --> 0:10:09.681 are they really going to be when? Because there's one 0:10:09.721 --> 0:10:12.241 thing when you when you people feel they've got lots 0:10:12.241 --> 0:10:15.001 of extra money in their pocket and therefore, you know, 0:10:15.401 --> 0:10:17.281 let's go and buy another holiday and spare buy a 0:10:17.281 --> 0:10:20.081 new car and all that, But when people are struggling 0:10:20.161 --> 0:10:21.841 to make ends, mate, and the people in the middle 0:10:21.841 --> 0:10:25.201 feeling it squashed, is that tax cut really as inflationary 0:10:25.241 --> 0:10:28.241 as some some you know might have criticized it in 0:10:28.241 --> 0:10:29.281 the political hustings. 0:10:30.001 --> 0:10:30.601 Yeah, I think. 0:10:30.641 --> 0:10:34.761 I think in a weird way, it has almost by accident, 0:10:35.441 --> 0:10:37.921 come at a time where the economy really needs it, 0:10:37.721 --> 0:10:40.801 so it is actually acting in that way that you 0:10:40.801 --> 0:10:45.281 would expect fiscal policy to work. You know that when 0:10:45.281 --> 0:10:48.241 there is a downturn in the economy, then you know 0:10:48.441 --> 0:10:50.361 the government can step in and soften the blow. 0:10:50.481 --> 0:10:52.321 So it's turned out that way. 0:10:52.441 --> 0:10:55.881 But I don't think anybody thought, including Treasury, that the 0:10:55.961 --> 0:10:59.361 economy would be as weak as it is now and 0:10:59.401 --> 0:11:02.121 then likely to be weak over the coming year. So 0:11:02.601 --> 0:11:05.841 I think it has been fortunate in a way that 0:11:05.881 --> 0:11:09.441 these are coming along to provide a bit of a cushion. 0:11:09.721 --> 0:11:13.201 But I think when they were first talked about and promised, 0:11:15.041 --> 0:11:19.121 I personally thought that was an unusual thing to be 0:11:19.161 --> 0:11:22.001 happening when there was so much focus on the amount 0:11:22.081 --> 0:11:25.161 of debt that our government had accumulated and would be 0:11:25.441 --> 0:11:28.921 accumulating over the coming four or five years that I 0:11:28.921 --> 0:11:30.321 thought it was an unusual. 0:11:30.801 --> 0:11:33.681 So well, you I think we've put the politics side 0:11:33.681 --> 0:11:35.841 to bed a little bit. But it's just I guess 0:11:35.841 --> 0:11:37.961 that's the amusing side of things, seeing people take credit 0:11:38.001 --> 0:11:41.481 for different things. I guess at the heart of it is, 0:11:41.681 --> 0:11:45.481 I've always I've been developing more and more this suspicion 0:11:45.521 --> 0:11:47.801 that you forget tax cuts and all that the person 0:11:47.801 --> 0:11:49.561 who has the most control over the welfare of New 0:11:49.641 --> 0:11:53.001 Zealanders is the guy who controls the cash rate. And 0:11:53.041 --> 0:11:55.841 that's about it. And it says name is ta Mahuta. Wops, 0:11:55.921 --> 0:11:59.441 sorry Adrian, or it's dead right. 0:12:00.281 --> 0:12:01.521 It's a blunt tool, you know. 0:12:01.561 --> 0:12:05.161 You'll often hear Adrian talk about it in that way 0:12:05.161 --> 0:12:11.001 and many central bank governors. But it's very powerful because 0:12:11.041 --> 0:12:15.321 of how broadly the economy is affected. 0:12:15.441 --> 0:12:17.081 And of course we've talked before. 0:12:17.001 --> 0:12:21.281 About those that have debt and are impacted by the 0:12:21.321 --> 0:12:23.601 interest rates that they have to pay on that. But 0:12:23.641 --> 0:12:25.801 of course there's the other side of it as well, 0:12:25.881 --> 0:12:28.641 to which is those that are savers or have the 0:12:28.681 --> 0:12:31.281 ability to save, they will respond to those higher interest 0:12:31.361 --> 0:12:35.641 rates as well, and they'll be incentivized to save today 0:12:36.041 --> 0:12:40.441 and spend tomorrow, and that's something which is a driver 0:12:40.601 --> 0:12:44.161 of the economic weakness we're seeing, as well as those 0:12:44.201 --> 0:12:46.041 that are struggling to service debt. 0:12:46.521 --> 0:12:48.201 Well, let's get onto this the Reserve Bank and that 0:12:48.721 --> 0:12:49.481 pivot of theirs. 0:12:51.121 --> 0:12:55.041 Were you surprise, how would you describe the way that 0:12:55.081 --> 0:12:56.361 they've shifted their rhetoric? 0:12:57.361 --> 0:12:58.801 It was, It was a big surprise. 0:12:58.921 --> 0:13:02.041 I think that the timing mainly, I think our view 0:13:02.081 --> 0:13:06.521 had been that they were on a path at at 0:13:06.521 --> 0:13:09.561 some point they would recognize just how weak things were 0:13:10.161 --> 0:13:15.041 out there. But the timing of this was unusual for 0:13:15.121 --> 0:13:18.481 a couple of reasons. That the meeting prior had been 0:13:18.521 --> 0:13:22.241 one which we describe is very hawkish. That's one where 0:13:22.881 --> 0:13:29.321 the rhetoric around sort of inflation risks was prominent. You know, 0:13:29.361 --> 0:13:34.041 they'd even contemplated hiking interest rates at that may monetary poz. 0:13:34.281 --> 0:13:36.081 Nobody bought that one though, you know. 0:13:36.481 --> 0:13:39.761 Well, you know they didn't. They didn't, but then they worried. 0:13:39.841 --> 0:13:42.481 You know, the fact that that was stated in the 0:13:42.521 --> 0:13:45.361 meeting minutes. It's no accident that those things end up there. 0:13:45.401 --> 0:13:47.881 So there's a message that they want to want to send. 0:13:48.481 --> 0:13:51.601 But so we'd all been conditioned to this sort of 0:13:51.801 --> 0:13:55.681 strangely hawkish sort of central bank and then all of 0:13:55.721 --> 0:13:59.401 a sudden in this latest meeting, huge change in tone. 0:13:59.601 --> 0:14:03.601 You know, no way was there any consideration of hikes. 0:14:03.641 --> 0:14:06.681 It was much more balanced. It was reflecting many of 0:14:06.681 --> 0:14:10.401 the things that you know, people were experiencing and highlighting. 0:14:10.801 --> 0:14:15.401 And it was at a meeting where they didn't produce forecasts. 0:14:15.441 --> 0:14:18.281 These are sort of what are called monetary policy reviews. 0:14:18.361 --> 0:14:21.961 They're the in between meetings between the big ones where 0:14:21.961 --> 0:14:23.441 you've got to set a forecast and you can have 0:14:23.481 --> 0:14:25.481 a press conference and you explain what you're doing and 0:14:25.521 --> 0:14:26.121 all the rest of it. 0:14:26.481 --> 0:14:28.121 This was one of those interm ones. 0:14:28.641 --> 0:14:32.761 Yet they still had this this quite quite significant change 0:14:33.801 --> 0:14:36.521 in tone. And the final thing was that the chief 0:14:36.561 --> 0:14:40.761 economist was was actually on holiday. Paul Conway was not 0:14:41.001 --> 0:14:41.561 there for the. 0:14:41.521 --> 0:14:42.281 Meetings, so. 0:14:43.761 --> 0:14:45.081 All in all, and what does that mean? 0:14:45.881 --> 0:14:48.281 I just think he needed a break, and good good. 0:14:49.521 --> 0:14:51.841 I wondered if there was some significance someone's not here, 0:14:51.881 --> 0:14:55.081 what does it tell us? I mean, that's fascinating see 0:14:55.081 --> 0:14:56.681 that because you mentioned it, and I was just wondering 0:14:56.721 --> 0:14:58.761 if it's something you go, oh, he's not here, what's 0:14:58.761 --> 0:14:59.281 it mean. 0:15:01.121 --> 0:15:04.961 Yeah, no, I just think for many they would have 0:15:05.081 --> 0:15:07.201 gone into that meeting and the lead up and thought, 0:15:07.401 --> 0:15:09.281 this is not going to be one where we see 0:15:09.281 --> 0:15:14.321 a big change in communication and tone. They'll they'll largely 0:15:14.401 --> 0:15:18.961 repeat what they said in May. But instead, I think 0:15:19.001 --> 0:15:23.721 because of just how quickly the economy is deteriorating, they 0:15:23.761 --> 0:15:27.761 did feel the need to shift to a more balanced 0:15:29.321 --> 0:15:32.521 stance and and really open the door. Now the door 0:15:32.561 --> 0:15:36.041 is well and truly open to them cutting the official 0:15:36.041 --> 0:15:37.721 cash right as early as next month. 0:15:38.441 --> 0:15:39.601 Well that was unreasonable. 0:15:39.641 --> 0:15:41.161 Well that was my next question, because. 0:15:43.081 --> 0:15:46.561 What is what's the next event where they could credibly 0:15:46.681 --> 0:15:48.801 make an announcement about a change in the in the 0:15:48.841 --> 0:15:49.361 interest rate. 0:15:50.161 --> 0:15:53.361 Yeah, they could do it on the on the fifteenth 0:15:52.601 --> 0:15:53.961 of August. 0:15:54.041 --> 0:15:56.521 I think it is roughly they could. They could do 0:15:56.601 --> 0:15:57.561 it at that meeting. 0:15:57.761 --> 0:16:01.721 In between times, they will get some labor market data 0:16:02.361 --> 0:16:05.721 for the second quarter, which is likely to be really 0:16:05.801 --> 0:16:09.481 quite poor, and they have a view that the unemployment 0:16:09.561 --> 0:16:12.041 rate will pick up from the current four point three 0:16:12.081 --> 0:16:15.001 percent to four point six I mean, it could well 0:16:15.041 --> 0:16:17.081 be something more like five percent. 0:16:17.681 --> 0:16:21.401 And I think in that case, that really does. 0:16:21.921 --> 0:16:27.121 I think give them probably enough to seriously contemplate a 0:16:27.201 --> 0:16:30.961 rate cut in August that there's not a lot left. 0:16:31.001 --> 0:16:34.561 If you believe that, then this will flow into wages. 0:16:34.721 --> 0:16:35.601 It usually does. 0:16:35.721 --> 0:16:40.361 Ride a higher unemployment rate lowers the rate of wage inflation. 0:16:40.561 --> 0:16:44.081 Then on a forward looking basis, you could say with 0:16:44.121 --> 0:16:46.521 some confidence, you're on your way back to two percent. 0:16:46.801 --> 0:16:50.121 Yeah, wow, okay, look hey that's inflation, by the way, 0:16:50.241 --> 0:16:57.281 not the cash rate. Somebody will go, what hey, look, 0:16:57.441 --> 0:16:59.841 we'll come back in just a moment. With the Hamish Pepper, 0:16:59.881 --> 0:17:02.881 he's director and fixed income and currency strategist that have 0:17:03.201 --> 0:17:06.041 asset management and the fascining come just around the whole 0:17:06.081 --> 0:17:08.321 rhetoric of the reserve bank and what they're going to do, 0:17:08.561 --> 0:17:12.001 as Hamish mentioned, could be the middle of August, their 0:17:12.001 --> 0:17:14.001 next opportunity to put it down, what's your money on? 0:17:14.041 --> 0:17:15.681 Because you know what you can better as. 0:17:15.641 --> 0:17:17.441 Much as you like about you know, are we going 0:17:17.481 --> 0:17:20.001 to about government policy and all sorts of things, but 0:17:20.041 --> 0:17:22.161 another reserve bank are the ones who control so much 0:17:22.201 --> 0:17:24.041 of our of our well being and it if you've 0:17:24.041 --> 0:17:26.681 got a mortgage or you're a renter, so what's your bet? 0:17:26.761 --> 0:17:28.561 Are they going to drop the are they going to 0:17:28.601 --> 0:17:29.401 drop the rate sooner? 0:17:29.481 --> 0:17:30.081 Rather than later. 0:17:30.201 --> 0:17:32.681 And it's certainly relevant if you're looking at refixing your 0:17:32.681 --> 0:17:36.481 mortgage asking for a friend, no personal and because literally 0:17:36.521 --> 0:17:38.121 i am about to refix my mortgage, so I've got 0:17:38.161 --> 0:17:40.161 to think about that. I've made up my mind. Don't worry, 0:17:40.201 --> 0:17:42.241 but you tell me what your work, what your guess is, Oh, 0:17:42.241 --> 0:17:45.281 eight hundred and eighty ten eighty text nine two nine two, 0:17:45.281 --> 0:17:47.521 and you can email. I don't worry about emails, calls 0:17:47.521 --> 0:17:51.521 and texts. Okay, back in the mine, Welcome back to 0:17:52.081 --> 0:17:55.241 the smart money. My guest is Hamish Pepper from Harbor 0:17:55.241 --> 0:17:58.641 Asset Management. We're talking about the cash rate and the enthralling. 0:17:58.921 --> 0:18:00.401 It's almost like it's almost like. 0:18:00.401 --> 0:18:03.001 An active theater, isn't it the Reserve Bank that for 0:18:03.201 --> 0:18:06.281 such a dry institution, they're quite theatrical at times, aren't they? 0:18:06.361 --> 0:18:09.321 Because there's always something to read into the nuance, isn't there? 0:18:09.561 --> 0:18:10.881 Hamish? 0:18:10.961 --> 0:18:13.241 Yeah, I mean there is the I mean, I think 0:18:13.361 --> 0:18:16.921 one of the things that's been fantastic recently is the 0:18:17.001 --> 0:18:20.841 frequency with which they are speaking to the public and 0:18:21.281 --> 0:18:24.961 to you know, financial markets. You know, Paul Conway, the 0:18:25.041 --> 0:18:29.841 Chief Economist, recently had a speech where he had that 0:18:30.561 --> 0:18:34.041 on the basis of four pieces of research that have 0:18:34.161 --> 0:18:36.281 been produced, and you know. 0:18:36.401 --> 0:18:37.561 This is just it's great. 0:18:37.801 --> 0:18:39.921 Yes, it does give us the theater and then you 0:18:39.921 --> 0:18:42.201 know we're trying to you know, read the tea leaves 0:18:42.241 --> 0:18:46.881 and pick apart every every sentence. But you know, it's 0:18:46.881 --> 0:18:49.601 a great thing for all of us to have a 0:18:49.641 --> 0:18:52.441 central bank that's working like that, that's doing research that 0:18:52.521 --> 0:18:55.281 relates to this economy and then they're speaking about it 0:18:55.361 --> 0:18:58.481 and providing you know, a channel through which we can 0:18:59.201 --> 0:19:01.041 ask about it and learn about it. 0:19:01.521 --> 0:19:02.721 Yeah, I think that's great. 0:19:02.961 --> 0:19:07.161 Ye is there? Look, it's just reckons, isn't it. 0:19:07.401 --> 0:19:10.921 But do you think there's a little bit of anxiety 0:19:10.921 --> 0:19:13.321 at the Reserve Bank given that they made that pivot 0:19:13.321 --> 0:19:15.201 that was unexpected? Do you think there's a little bit 0:19:15.201 --> 0:19:18.081 of nervousness amongst in their ranks that maybe they've gone 0:19:18.081 --> 0:19:19.281 a bit too hard too long? 0:19:20.201 --> 0:19:20.681 I think so. 0:19:21.161 --> 0:19:26.441 Look, I think they will get no credit whatsoever for 0:19:26.561 --> 0:19:29.961 taking inflation below two percent, you know, two percents of 0:19:29.961 --> 0:19:31.841 the target. And don't get me wrong, you know we're 0:19:31.841 --> 0:19:34.961 not there yet, but we are getting close. And monetary 0:19:34.961 --> 0:19:37.961 policy operates with long and variable lags. You know, it 0:19:38.001 --> 0:19:40.401 can be up to two years before you get the 0:19:40.401 --> 0:19:44.081 full impact of where policy settings are today. So yes, 0:19:44.321 --> 0:19:46.641 I think you're right. I think that is starting to 0:19:46.681 --> 0:19:49.881 come through in the Monetary Policy Committee and the least 0:19:49.961 --> 0:19:53.761 regret which was for so long, the least regret being 0:19:53.881 --> 0:19:56.281 you know, not getting inflation back to two and leaving 0:19:56.321 --> 0:19:59.321 it above and having to you know, take policy even tighter. 0:19:59.761 --> 0:20:03.081 That least regret now is changing to one that as 0:20:03.121 --> 0:20:05.721 you say, we're a year or two head and we're 0:20:05.721 --> 0:20:11.081 looking at an economy that is really just too almost 0:20:12.041 --> 0:20:14.361 much weaker than it needed to be. You know that 0:20:14.361 --> 0:20:15.761 that's that's the regret. 0:20:15.841 --> 0:20:17.801 I think that's that's starting to emerge. 0:20:17.921 --> 0:20:19.401 I would argue that there have been a lot of 0:20:19.401 --> 0:20:22.081 people commentators who have argued that for a while, and 0:20:22.121 --> 0:20:24.361 that seems the last people to realize that was a 0:20:24.401 --> 0:20:27.961 reserve bank is that harsh. 0:20:28.281 --> 0:20:33.081 I think there is always going to be. And financial 0:20:33.081 --> 0:20:36.161 markets are the same. You know that that cohort that 0:20:36.241 --> 0:20:40.241 are kind of trying to get ahead of things, you know, 0:20:40.601 --> 0:20:43.801 and caught in calling for in this case interest rates 0:20:43.841 --> 0:20:47.281 to fall prior to you know, to them actually doing so. 0:20:48.841 --> 0:20:52.081