1 00:00:00,080 --> 00:00:02,160 Speaker 1: Good afternoons. We've got the start of good news for 2 00:00:02,200 --> 00:00:04,680 Speaker 1: the economy. The Reserve Bank has cut the official cash 3 00:00:04,720 --> 00:00:07,240 Speaker 1: rate by twenty five basis points and there's likely to 4 00:00:07,240 --> 00:00:10,360 Speaker 1: be at least another cunt coming this year. Kiwibank ASB 5 00:00:10,480 --> 00:00:12,600 Speaker 1: and A and Z immediately announced that they were cutting 6 00:00:12,600 --> 00:00:15,000 Speaker 1: their mortgage rates and response and the Finance Minister was 7 00:00:15,040 --> 00:00:15,960 Speaker 1: celebrating as well. 8 00:00:16,480 --> 00:00:19,640 Speaker 2: After four years, we're the only way for interest rates 9 00:00:19,680 --> 00:00:23,640 Speaker 2: to go was app The Reserve Bank is now forecasting 10 00:00:23,760 --> 00:00:26,480 Speaker 2: an era of interest rate reductions. 11 00:00:26,840 --> 00:00:29,760 Speaker 1: Former Reserve Bank economist Michael Riddella's with me now, have Michael, 12 00:00:31,720 --> 00:00:33,680 Speaker 1: were you surprised to see them actually do the right 13 00:00:33,680 --> 00:00:34,640 Speaker 1: thing and cut. 14 00:00:36,240 --> 00:00:38,360 Speaker 3: You couldn't quite tell what an institution that flip flopped 15 00:00:38,360 --> 00:00:40,440 Speaker 3: as much as they have. But no, I thought they 16 00:00:40,440 --> 00:00:42,479 Speaker 3: would find me today. When you're in a hole, you 17 00:00:42,479 --> 00:00:45,319 Speaker 3: stop digging, and even they learned that lesson right and what. 18 00:00:45,360 --> 00:00:47,320 Speaker 1: Is the motivator for them? Basically because we're in a 19 00:00:47,360 --> 00:00:48,080 Speaker 1: third recession? 20 00:00:49,320 --> 00:00:51,440 Speaker 3: Yeah, I mean they don't quite use those words, but yes, 21 00:00:51,520 --> 00:00:53,960 Speaker 3: the economies but are proven weaker than they expected. And 22 00:00:54,040 --> 00:00:56,440 Speaker 3: to get back to their made monetary policy statement, they 23 00:00:56,440 --> 00:00:58,959 Speaker 3: were expecting to see the economy starting to pick up. 24 00:00:59,120 --> 00:01:02,279 Speaker 3: If anything, it's getting worse, and they highlight a bunch 25 00:01:02,320 --> 00:01:05,080 Speaker 3: of high frequency indicators, business surveys and those sorts of 26 00:01:05,160 --> 00:01:07,080 Speaker 3: things that are looking really quite bleak at the moment. 27 00:01:07,360 --> 00:01:10,960 Speaker 1: Yeah, an interesting press conference today. Adrian Or wouldn't admit 28 00:01:11,000 --> 00:01:12,840 Speaker 1: that he'd made any mistakes. Of course he wouldn't. 29 00:01:13,040 --> 00:01:16,760 Speaker 3: Has he done that, definitely has. I mean, it's a 30 00:01:16,800 --> 00:01:19,759 Speaker 3: really bad look for the bank to have gone out 31 00:01:19,880 --> 00:01:22,520 Speaker 3: pretty strongly in May on the idea that rates would 32 00:01:22,520 --> 00:01:24,200 Speaker 3: have to stay out for at least a year. They 33 00:01:24,280 --> 00:01:27,880 Speaker 3: might even have to rise somewhat from there to where 34 00:01:27,880 --> 00:01:29,800 Speaker 3: we are today. And it's not as if some big 35 00:01:29,840 --> 00:01:33,240 Speaker 3: event has happened externally. It's just that they badly misread 36 00:01:33,440 --> 00:01:35,560 Speaker 3: of what's going on in the economy. And that's pretty 37 00:01:35,560 --> 00:01:38,080 Speaker 3: inexcusable because they were raising ranks up to the middle 38 00:01:38,120 --> 00:01:40,600 Speaker 3: of last year. Manity policy works of a lag. It 39 00:01:40,640 --> 00:01:43,200 Speaker 3: takes a year or so when you get interest rates 40 00:01:43,280 --> 00:01:44,679 Speaker 3: to a high level. A year or so later, you 41 00:01:44,760 --> 00:01:47,240 Speaker 3: expect to see things looking pretty sick, and pretty sick 42 00:01:47,280 --> 00:01:50,440 Speaker 3: they are. The good news is that means inflash is 43 00:01:50,480 --> 00:01:54,280 Speaker 3: really coming down, and they're now much more confident that 44 00:01:54,280 --> 00:01:55,720 Speaker 3: We're going to get back to the middle of the 45 00:01:56,040 --> 00:01:58,279 Speaker 3: target range, but at quite a price. 46 00:01:58,560 --> 00:02:01,600 Speaker 1: Michael, can you explain how they misread things so badly 47 00:02:01,640 --> 00:02:03,760 Speaker 1: that they've gone from a possible hike in May to 48 00:02:03,840 --> 00:02:04,920 Speaker 1: a cut in August. 49 00:02:06,600 --> 00:02:08,839 Speaker 3: It's hard to do so without being a fly into 50 00:02:08,880 --> 00:02:11,320 Speaker 3: all of their deliberations. But I think they were sort 51 00:02:11,320 --> 00:02:14,120 Speaker 3: of freaked for a bit about by some of the 52 00:02:14,120 --> 00:02:18,480 Speaker 3: things I'm so called non tradables inflation, so particularly rates 53 00:02:18,520 --> 00:02:21,919 Speaker 3: and insurance costs, and neither of those things are things 54 00:02:21,919 --> 00:02:26,760 Speaker 3: that Manshro policity can do much about. And somehow they 55 00:02:26,880 --> 00:02:29,720 Speaker 3: just got rattled and they didn't believe the narrative, they 56 00:02:29,760 --> 00:02:34,200 Speaker 3: didn't believe in their models, and a few bits of 57 00:02:34,280 --> 00:02:38,240 Speaker 3: data three months ago just mis led them. And it's 58 00:02:38,280 --> 00:02:40,240 Speaker 3: a week leadership on the part of the governor and 59 00:02:40,280 --> 00:02:43,160 Speaker 3: the chief economist not to have said, look, guys, let's 60 00:02:43,200 --> 00:02:45,640 Speaker 3: just hold the course and see what they get to. 61 00:02:46,200 --> 00:02:48,639 Speaker 1: So what are you picking another cut by year's end 62 00:02:48,720 --> 00:02:50,839 Speaker 1: and four and a half percent oh CR by mid 63 00:02:50,880 --> 00:02:51,320 Speaker 1: next year. 64 00:02:52,240 --> 00:02:53,920 Speaker 3: I actually think they'll lend of having to go further 65 00:02:53,960 --> 00:02:55,800 Speaker 3: than that. If you look at the numbers in their 66 00:02:56,840 --> 00:03:00,320 Speaker 3: marshal policy statement, they expect to see growth rebounding quitely 67 00:03:00,360 --> 00:03:02,840 Speaker 3: but early next year, and it's just not clear how 68 00:03:02,880 --> 00:03:05,200 Speaker 3: that's going to happen. Fiscal policy is going to be 69 00:03:05,240 --> 00:03:07,680 Speaker 3: quite contractionary. The government's cutting and spending over the next 70 00:03:07,680 --> 00:03:10,720 Speaker 3: couple of years. Interst Rates on their own telling are 71 00:03:10,720 --> 00:03:13,919 Speaker 3: still above what we call neutral, so I wouldn't be 72 00:03:14,000 --> 00:03:16,440 Speaker 3: surprised if for the middle of next year we aren't 73 00:03:16,480 --> 00:03:18,960 Speaker 3: out of three or even two point five percent. Well, 74 00:03:19,000 --> 00:03:22,440 Speaker 3: I'm consistent with what's happened in previous using cycles over 75 00:03:22,600 --> 00:03:23,440 Speaker 3: twenty thirty years. 76 00:03:23,520 --> 00:03:25,400 Speaker 1: Yeah, that's a massive change, isn't it. Michael. Thank you 77 00:03:25,480 --> 00:03:28,320 Speaker 1: very much for the expertise. Michael Radelle, former Reserve Bank economist. 78 00:03:29,440 --> 00:03:32,639 Speaker 2: For more from Hither Duplessy Allen Drive, listen live to 79 00:03:32,720 --> 00:03:35,760 Speaker 2: news talks it'd be from four pm weekdays, or follow 80 00:03:35,800 --> 00:03:37,560 Speaker 2: the podcast on iHeartRadio.