Speaker 1: Kiodra. I'm Chelsea Daniels and this is the Front Page,
Speaker 1: a daily podcast presented by the New Zealand Herald. The
Speaker 1: official cash rate has been cut to four point seventy
Speaker 1: five percent, which is being touted as welcome news for
Speaker 1: households all over New Zealand. It's the lowest the OSA
Speaker 1: has been in eighteen months. The Monetary Policy Committee said
Speaker 1: that annual consumer price inflation was within its one to
Speaker 1: three percent inflation target range and converging on the two
Speaker 1: percent midpoint. While plenty of people are popping the champagne
Speaker 1: over this announcement is the latest cut, masking some of
Speaker 1: the other issues in the economy. Today. On the front Page,
Speaker 1: Herald Business Editor at Large Liam Dan joins us to
Speaker 1: discuss the stats. You need to know, Liam, what's the
Speaker 1: significance of this latest OCR cut? What does this actually
Speaker 1: mean for the economy?
Speaker 2: Well, really, the cut just means cost of borrowing goes down,
Speaker 2: which means people who are paying who have debt will
Speaker 2: be paying less money out to service that debt, so
Speaker 2: they'll have more money to spend. So it's a way
Speaker 2: of putting cash back into the economy which had been
Speaker 2: removed by the Central Bank, by the Reserve Bank in
Speaker 2: order to get on top of inflation, because they put
Speaker 2: lots of money into the economy to cope with.
Speaker 1: COVID, and in terms of inflation, that number is looking
Speaker 1: a lot friendlier. Now.
Speaker 2: Hey, yeah, Well, the official rate is three point three percent,
Speaker 2: which is still outside the mandated target ban, but that's old.
Speaker 2: That's for the second quarter of the year. We don't
Speaker 2: get the official number for the third quarter until next week,
Speaker 2: which is a bit inconvenient. But the Reserve Bank is
Speaker 2: very confident that it is under control, and it has
Speaker 2: said that the statement this week that basically they see
Speaker 2: it below three already. They've looked at I guess, second
Speaker 2: tier stuff like what businesses are saying about their own
Speaker 2: pricing and all that sort of stuff. And also, you know,
Speaker 2: when you look at the way the data flows through
Speaker 2: the way the statistics work, the third quarter last year
Speaker 2: had very high inflation numbers. We're in the near the
Speaker 2: peak of that inflation. They'll drop out, so we know
Speaker 2: that they'll come out of the average. So for the
Speaker 2: average annual rate over the last year, it is looking
Speaker 2: likely that it'll be below three percent. So that I
Speaker 2: guess means we can say, in terms of high inflation,
Speaker 2: it's over. We've won the war against inflation. Doesn't mean
Speaker 2: prices won't go up necessarily, but we shouldn't be seeing
Speaker 2: those big spikes. And some things might go down, some
Speaker 2: might go up, but the average rate's going to be
Speaker 2: between one and three, which is where economists and central
Speaker 2: banks like to keep it.
Speaker 1: And do we look at that rate when we kind
Speaker 1: of determine whether we're in a recession or a recessionary period.
Speaker 2: It has an impact, but the recession is usually judged
Speaker 2: on in the output of the economy. If the output's
Speaker 2: falling massively and we're in a deep recession, then often
Speaker 2: pricing will fall as well. And that well, that has happened.
Speaker 2: That's why they talk about the reserve bank engineering a recession.
Speaker 2: I mean, they don't really want a recession necessarily, but
Speaker 2: they have to reduce the amount of activity in the
Speaker 2: economy just to get that inflationary effect out.
Speaker 1: And how are we looking at the moment in terms
Speaker 1: of the recession.
Speaker 2: Well, we're either still in recession or just popping out
Speaker 2: of a recession as we've sort of moved into the
Speaker 2: fourth quarter. But we don't get the GDP data till
Speaker 2: much later. But we know that the Reserve Bank in
Speaker 2: August forecast at the third quarter would be negative as well.
Speaker 2: We went backwards, so that would be recession. People talk
Speaker 2: a lot about per capita recession with the immigration numbers
Speaker 2: over the past couple of years. We've been in per
Speaker 2: capita recession for two years, so you know, depending on
Speaker 2: how much weight you put on that per person in
Speaker 2: this country, the size of the economy has been shrinking
Speaker 2: for some time.
Speaker 1: Most commons are predicting further cuts to the OCR in
Speaker 1: the coming months.
Speaker 3: In August it dropped to the lowest it's been in
Speaker 3: four years, and there could be more drops up left,
Speaker 3: with some people saying that it could drop to his
Speaker 3: lowest three point five percent by the end of twenty
Speaker 3: twenty five.
Speaker 4: Now another drop is predicted at the end of November
Speaker 4: when we'll see them meet again, and all predictions are
Speaker 4: now that by the end of next year the reserve
Speaker 4: banks of the OCR will be back within what they
Speaker 4: call the neutral range of two and a half to
Speaker 4: three percent.
Speaker 1: Why doesn't the Reserve Bank just do them all in
Speaker 1: one big go, That's.
Speaker 2: A good question. It would be very dramatic to do
Speaker 2: like some people have said, look, maybe a seventy five
Speaker 2: basis point cut after something like christ Church earthquake or
Speaker 2: when the global financial crisis hit. Sometimes I think we
Speaker 2: might have gone to a full one percent cut, trying
Speaker 2: to remember straight after COVID, at the worst of that
Speaker 2: COVID as well. That's very dramatic though, And you know,
Speaker 2: we talk about monetary policy being a blunt and if
Speaker 2: you do that, it affects the balance of the cost
Speaker 2: of borrowing a lot, and it's hard to undo fast,
Speaker 2: you know. So if it was bumping around by a
Speaker 2: four percent from quarter to quarter or between rate calls,
Speaker 2: that would be very hard to plan forward plan as
Speaker 2: a business or even as a consumer or you know,
Speaker 2: when you're looking at buying a house. So really what
Speaker 2: you want with monetary policy and central bank action is slow,
Speaker 2: stable change. You want it to be sitting somewhere really
Speaker 2: predictable for quite a long time. So even the cuts
Speaker 2: we're seeing now are probably you know, it's good to
Speaker 2: see it come down, but it's a shame that we're
Speaker 2: having to cut so hard because it's so dramatic, and
Speaker 2: you know, ideally it would be a smoother path, so
Speaker 2: you'd have a series of twenty five basis point cut.
Speaker 2: Central banks don't like to cut in big numbers unless
Speaker 2: there's really dramatic reason to do it, and that's why
Speaker 2: I've been saying that, you know, if we do have
Speaker 2: another fifty basis point cut and then some economists are
Speaker 2: even picking another one in February, that's three fifty basis
Speaker 2: point cuts. That is quite radical, and it's not the
Speaker 2: sort of thing a central bank would do unless the
Speaker 2: economy was really in a lot of trouble. So I'm
Speaker 2: hoping that even though I've got a mortgage and I
Speaker 2: want rates to come down to sort of three percent
Speaker 2: or something, if we had to get there in the
Speaker 2: early next year, that would really be an indication that
Speaker 2: something was not right with the economy.
Speaker 1: And we've already seen some activity from our major banks. Haleium,
Speaker 1: what's the latest on those.
Speaker 2: Yeah, a lot of marketing stuff. I would say Initially
Speaker 2: we saw some banks move ahead of the ocr and
Speaker 2: there's a lot of competition and positioning. But more or
Speaker 2: less the fifty basis points has been passed through. I
Speaker 2: don't know if we'll see much more from here. Sometimes
Speaker 2: the bank rates are also affected by what's happening overseas
Speaker 2: and things, but it's been passed through pretty well, and
Speaker 2: now it's just a matter of when people refix. Businesses
Speaker 2: are more likely to be floating or on very short
Speaker 2: term rates, and they pay higher rates and they'll feel
Speaker 2: some benefits straight away, and then businesses will get some
Speaker 2: indirect benefit as consumers have more money in their pockets.
Speaker 2: And it's not insubstantial. You know, it's bigger, probably for
Speaker 2: most mortgage holders than what the government's tax cut was.
Speaker 2: I think if you're talking about fifty basis points or
Speaker 2: half a percent, or say a five hundred thousand dollars mortgage,
Speaker 2: that's two five hundred dollars a year, fifty bucks a week,
Speaker 2: almost fifty dollars a week, and a lot of people
Speaker 2: have bigger mortgages than that. And if you're not refixing
Speaker 2: next week, maybe it's a month or so, but you're
Speaker 2: still seeing, oh, that's going to be money that's coming
Speaker 2: back into my pocket. Or you know, if you're lucky
Speaker 2: enough to be in a position to not adjust your payments,
Speaker 2: just leave it there and let the lower interest rates
Speaker 2: mean that you're paying off your mortgage faster. Then you'll
Speaker 2: be better off.
Speaker 1: In the long run, Retail and Z is hoping the
Speaker 1: recent cut will bring some extra Christmas chair. What's the
Speaker 1: likelihood of better bending this silly season.
Speaker 2: Well, I think there will be, particularly if we get
Speaker 2: another one or another fifty basis points in November, that
Speaker 2: will feel quite a substantial boost. It's not quite clear
Speaker 2: how much confidence is going to be boosted by this.
Speaker 2: It seems very upbeat at the moment, but then we
Speaker 2: have to remember the Reserve Bank was warning that it's
Speaker 2: doing this. It's comfortable doing this because inflation is falling
Speaker 2: and they know that the economy is in a slow patch.
Speaker 2: They can see business stress rising, they can see unemployment rising,
Speaker 2: and they see that continuing well into next year. So
Speaker 2: if you're worried about losing your job, you're probably less
Speaker 2: likely to spend. And it's not necessarily a super quick
Speaker 2: turnaround for some of these businesses that have been under
Speaker 2: awful stress for a long time.
Speaker 1: Does the OCR cauts and all this talk about interest rates,
Speaker 1: does this mean anything for those of us who don't
Speaker 1: actually have a home or a mortgage, Well, I guess.
Speaker 2: For younger people, probably the bigger issue right now is
Speaker 2: unemployment and rising unemployment and the risk of losing your job.
Speaker 2: So as businesses feel like they're more confident consume, the
Speaker 2: confidence grows, then hopefully we'll start to see the employment
Speaker 2: situation turn around. I mean that to me is the
Speaker 2: biggest issue. I think, you know, in a way, during
Speaker 2: the COVID stimulus, there was a labor shortage. There was
Speaker 2: actually a lot of opportunity for younger people in the
Speaker 2: job market, and that's obviously dried up, and that's making
Speaker 2: it a bit tougher to get a pay rise or
Speaker 2: to move around jobs and get pay rises in that
Speaker 2: we know, you know, wage inflation is part of the
Speaker 2: inflation that's falling away, which is not so good.
Speaker 1: Well, that's kind of the process by which inflation comes down.
Speaker 2: It's the overall weakning of demand and that comes through
Speaker 2: in terms of weaker inflation and unfortunately in terms of
Speaker 2: job losses and business closures. Maybe if you're saving a
Speaker 2: way and looking to buy our first home, then lower
Speaker 2: mortgage rates are going to make it a bit easier.
Speaker 2: Hopefully it doesn't just spark another housing boom. And most
Speaker 2: commentators seem to think that even with lower mortgage rates,
Speaker 2: there isn't really enough pent up demand and to suddenly
Speaker 2: see house prices start spiking like they did a couple
Speaker 2: of years ago.
Speaker 4: Well. L J.
Speaker 1: Hooker has actually noted the reduction in interest rates is
Speaker 1: already impacting the property market. They say, we're seeing a
Speaker 1: significant uplift in buyer activity and confidence. More people are
Speaker 1: attending open homes, more people have been attending auctions around
Speaker 1: the country. So I guess people are getting a little
Speaker 1: bit more optimistic about their chances of entering the housing market. Yeah.
Speaker 2: I mean that's from a real estate agent, right, yeah, Okay, Well,
Speaker 2: I mean and it came out the day of but look, yeah,
Speaker 2: there's going to be more confidence and optimism seeping in,
Speaker 2: and there will be people on the sidelines who are
Speaker 2: actually cashed up properly, investors who were thinking, oh, the
Speaker 2: numbers don't add up, don't add up, and then suddenly
Speaker 2: the numbers do add up now, or they can see
Speaker 2: that they're going to add up in terms of mortgages
Speaker 2: and the rent you can charge and all that sort
Speaker 2: of stuff. So I would say some investors will be
Speaker 2: coming back. And it does tend to pick up and
Speaker 2: spring as well, So I don't know if that's a
Speaker 2: seasonally a press release, but there's a few factors that
Speaker 2: are just you'd call headwinds to that. I mean, we're
Speaker 2: not seeing immigration rise now. The immigration rate is falling,
Speaker 2: so you know, we're not seeing masses of new people
Speaker 2: arriving into the country, and we are seeing a lot
Speaker 2: of new Zealanders leave, So just the sheer population effect
Speaker 2: there won't be that kind of pressure. There could be
Speaker 2: further changes the government regulations, you know, if they were
Speaker 2: to open up to foreign investment in the residential market
Speaker 2: something like that could be a further boost. But yeah,
Speaker 2: I think we will see it start to improve. But
Speaker 2: I just don't think it's going to suddenly turn into
Speaker 2: one of these housing bubble price spikes.
Speaker 4: Double whammy, double heavy. It's a sign that we've got
Speaker 4: inflation coming under control, which is what we need to
Speaker 4: get a lit on the cost of loving crisis.
Speaker 1: Nikola Willis said we're seeing green shoots after this announcement.
Speaker 1: What does she mean by.
Speaker 2: That, Well, green shoots is a kind of colloquial economy
Speaker 2: term for the return of growth after a period of recession.
Speaker 2: Remember it being very popular after the GFC and often
Speaker 2: gets used too early. I think it's how hard you
Speaker 2: look for the green shoots. She's right that the conditions
Speaker 2: are coming right for growth, you know, for people to
Speaker 2: start investing in She's obviously she's got an interest in
Speaker 2: encouraging that. And I don't want to sound too gloomy,
Speaker 2: but you sort of have to ask where does the
Speaker 2: growth come from other than just a bit more cash
Speaker 2: in the economy, a bit more consumer spending, and a
Speaker 2: bit more maybe life in their housing market. Those are
Speaker 2: the sort of the frothy, lighter ends of the economy.
Speaker 2: What the economy needs is I don't think I don't
Speaker 2: think Nicola Willis or Christoph Luxe would argue with this,
Speaker 2: because they're out there saying that they're trying to affect
Speaker 2: this change as well. But what the economy needs is
Speaker 2: growth coming from the actual engine room, which is the
Speaker 2: productive end, manufacturing and agriculture and investment in those areas
Speaker 2: to boost our economic output, our export earnings, those kind
Speaker 2: of things, rather than just money going round again. You know,
Speaker 2: you can pour money into an economy, as we've just
Speaker 2: seen through COVID. You can pour money into an economy
Speaker 2: and GEDDP can look very good for a while, but
Speaker 2: it starts to cause inflation unless you've got real wealth creation,
Speaker 2: you know, goods that we're selling and earning money from, etc.
Speaker 1: So, Liam, is the economy actually really in a good place?
Speaker 1: Reading a lot of these press releases, like we've said
Speaker 1: a post announcement, it felt like Santad come early. And
Speaker 1: I know you like being cautiously optimistic.
Speaker 2: Yeah, it isn't in a good place right now. But
Speaker 2: sometimes you'll see business confidence surveys and they'll be very
Speaker 2: They'll be like a decade high. The confidence is at
Speaker 2: the highest it's been in a decade. I think that
Speaker 2: was the A and Z Business Outlook. That's asking people
Speaker 2: what they think the economic conditions will be like in
Speaker 2: a year. So things are so bad they can only
Speaker 2: be better. So most people in that survey are now saying, yep,
Speaker 2: they'll be better in a year. So you get a
Speaker 2: really strong result. But really there are still a lot
Speaker 2: of businesses doing it really tough, especially in retailing. You know,
Speaker 2: I've done some work with retail in Z the Association.
Speaker 2: You know, they talk about a lot of businesses still
Speaker 2: really really struggling. And of course there's businesses that are
Speaker 2: dealing with a whole bunch of structural change as well.
Speaker 2: So you know, retailers are competing with online stuff out
Speaker 2: of China, Temu and all the rest of it. People,
Speaker 2: even though they're going to have a bit more money
Speaker 2: in their pocket, may be a bit shell shocked from
Speaker 2: the whole experience of the last two years or so,
Speaker 2: so they may be inclined to save a bit put
Speaker 2: a bit aside, which is a good thing, but doesn't
Speaker 2: translate to immediate stimulus. So I guess it's just not
Speaker 2: quite clear yet how quickly this will turn around. There's
Speaker 2: a lot of external factors too, so New Zealand is
Speaker 2: very reliant on the strength of the global economy. American
Speaker 2: economy is going quite well, Chinese economy not so well,
Speaker 2: but it's had some stimulus, so we have to wait
Speaker 2: and see really how strong demand out of China will
Speaker 2: be and what that does to our export prices, that
Speaker 2: kind of thing.
Speaker 1: Thanks for joining us, Liam, that said for this episode
Speaker 1: of The Front Page. Read more about today's stories and
Speaker 1: extensive news coverage at enzidherld dot co dot nz. The
Speaker 1: Front Page is produced by Ethan Sills and sound engineer
Speaker 1: Patti Fox. I'm Chelsea Daniels. Subscribe to The Front Page
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