WEBVTT - Hamish Pepper: Don't act too quickly after OCR announcement 0:00:05.761 --> 0:00:09.641 You're listening to the Weekend Collective podcast from News Talks EDB. 0:00:10.441 --> 0:00:15.201 My body's talking about exponential growth and the star monkey 0:00:15.361 --> 0:00:20.121 crashing and the portfolios. Well, ah, were sitting here with 0:00:20.361 --> 0:00:23.761 this song rote love Chanez the. 0:00:23.761 --> 0:00:41.321 World and mom and I love Cheese the world and. 0:00:36.881 --> 0:00:38.881 And welcome back to the show. I have no idea 0:00:38.881 --> 0:00:41.161 who this is singing about money and money and expenditure 0:00:41.161 --> 0:00:44.081 and growth. Oh, it's sharing. Apparently there we go, and 0:00:44.161 --> 0:00:47.401 we so there we go. Some some music to theme 0:00:47.481 --> 0:00:49.561 for our next hour. This is a Weekend Collective and 0:00:49.601 --> 0:00:52.401 now it's time for smart money and of course what 0:00:52.401 --> 0:00:55.721 we're going to discuss this before introduce our guest is well, 0:00:55.801 --> 0:00:58.641 the Reserve Bank cut the oc arbor another fifty basis 0:00:58.681 --> 0:01:02.521 points and the week that's just gone, homeowners and buyers 0:01:03.281 --> 0:01:05.521 like being eagerly watching for the announcement to a lot 0:01:05.561 --> 0:01:08.321 of predictions. Most people actually guessed it was going to 0:01:08.361 --> 0:01:11.241 be fifty points. I guess twenty five, just to be contrary, 0:01:11.281 --> 0:01:13.801 because I thought that the inflationary pressures that were happening 0:01:13.841 --> 0:01:17.281 as the result of the Trump presidency might actually temper predictions. 0:01:17.601 --> 0:01:21.121 Although the Reserve Bank Governor Adrian Or has sort of 0:01:21.161 --> 0:01:24.921 tried to quell expectations of any major cuts following this anyway, 0:01:24.961 --> 0:01:27.081 So what's behind it? But we want your calls as 0:01:27.081 --> 0:01:28.641 well on O E one hundred and eighty ten to eighty. 0:01:28.881 --> 0:01:30.561 And the simple question is, when it comes to the 0:01:30.561 --> 0:01:34.081 ocr what does it actually mean for you? Is it 0:01:34.161 --> 0:01:37.401 something you've been waiting for? And if it does, if 0:01:37.441 --> 0:01:40.121 it is significant, what action do you end up taking 0:01:40.161 --> 0:01:42.961 on the back of that prediction, on that sorry, the 0:01:43.001 --> 0:01:46.281 back of that cut in addition to that, do you 0:01:46.321 --> 0:01:49.841 reckon that's it? Or do you actually think, well, I'm 0:01:49.841 --> 0:01:51.721 asking for your predictions basically, do you think it'll go 0:01:51.801 --> 0:01:53.641 much further? And I don't think it will go down 0:01:53.721 --> 0:01:56.561 much further at all, because they'll probably be worried about 0:01:57.681 --> 0:02:00.641 Actually I don't know. But that's the whole point of 0:02:00.681 --> 0:02:03.681 this hour. We have a chat about the Reserve Bank 0:02:03.841 --> 0:02:06.841 rate cut and implications for it. And joining me he 0:02:07.081 --> 0:02:12.041 is director and fixed income and currency strategist at Harbor 0:02:12.041 --> 0:02:15.721 Asset Management, is Hamish Pepper. Good afternoon, Hi, Tim, How 0:02:15.761 --> 0:02:19.641 are you not too bad? That is quite now? Just 0:02:19.761 --> 0:02:23.201 explain again because I know I've asked this before, because 0:02:23.241 --> 0:02:27.441 you've got a lengthy business card discriver occupation director. That 0:02:27.601 --> 0:02:30.881 means you're a director at Harbor Asset Management, fixed income 0:02:31.001 --> 0:02:32.441 and currency strategist. 0:02:33.921 --> 0:02:37.681 That's right. Yeah, yeah, our interest rates going up or down? 0:02:38.001 --> 0:02:40.961 Is the currency going to strengthen all weekend? That's the 0:02:41.521 --> 0:02:42.481 kind of stuff I'm into. 0:02:42.761 --> 0:02:46.201 And did you bet correctly that fifty basis points cut 0:02:46.241 --> 0:02:48.601 from the Reserve Bank was what was going to happen? 0:02:48.721 --> 0:02:50.881 Or were you more conservative or optimistic? 0:02:51.721 --> 0:02:51.881 Yeah? 0:02:52.001 --> 0:02:55.761 No, we were with the large group that thought fifty 0:02:55.801 --> 0:02:58.761 basis points was the most likely thing. I mean, Adrian 0:02:59.081 --> 0:03:01.601 did Adria and all this is the Reserve Bank of 0:03:01.601 --> 0:03:04.561 New Zealand governor did an unusual thing in November when 0:03:04.601 --> 0:03:07.201 we last heard from them prior to this meeting, and 0:03:07.241 --> 0:03:10.401 said in the press conference, look, my base case is 0:03:10.441 --> 0:03:13.681 another fifty in February. So unless there's anything, you know, 0:03:13.841 --> 0:03:16.401 really meaningful, that's what we're doing. And so with that, 0:03:16.521 --> 0:03:20.241 the market, as well as most economists just sort of 0:03:20.241 --> 0:03:21.161 move to that view. 0:03:22.241 --> 0:03:25.801 He actually had a comment didn't ever crack at the banks, 0:03:25.881 --> 0:03:28.121 saying I expect you to this to be reflected. But 0:03:28.761 --> 0:03:30.881 I wondered if that was a bit unreasonable given that 0:03:30.961 --> 0:03:34.041 he had signaled the cut the banks had sort of 0:03:34.041 --> 0:03:36.841 predicted the cut, and so some of them sort of 0:03:37.241 --> 0:03:39.601 had based maybe some of their interest rates on this 0:03:40.121 --> 0:03:41.761 anticipated announcement, wouldn't they. 0:03:42.441 --> 0:03:46.041 Yeah, that's dead right. I think the market has for 0:03:46.601 --> 0:03:51.041 some time now pretty well anticipated this, this easing cycle, 0:03:51.121 --> 0:03:54.801 this succession of interest rate cuts, and of course that's 0:03:55.201 --> 0:04:00.201 why perhaps you haven't seen mortgage rates move as frequently 0:04:00.321 --> 0:04:03.601 lower or by as much, because of exactly your point 0:04:03.641 --> 0:04:07.921 to the market had anticipated this a fair few months ago, 0:04:08.041 --> 0:04:10.201 and that was when we really started to see, you know, 0:04:10.241 --> 0:04:14.081 some of the larger reductions and mortgage rates was pre Christmas. 0:04:14.161 --> 0:04:16.721 I actually noticed I bank with the A and Z. 0:04:17.361 --> 0:04:19.961 But I noticed when I went to because you can 0:04:20.761 --> 0:04:22.561 on interest stock cut at in Z has a summary 0:04:22.601 --> 0:04:25.241 of all the different interest mortgage rates, and I did 0:04:25.361 --> 0:04:27.921 notice the rate that stuck out to me was that 0:04:27.961 --> 0:04:29.961 A and Z was offering four point nine to nine 0:04:29.961 --> 0:04:35.841 percent for two years, which which does signal, doesn't it 0:04:35.881 --> 0:04:37.801 that they think that there might be a little bit 0:04:37.841 --> 0:04:41.081 more cutting going on and they've priced that into their 0:04:41.081 --> 0:04:42.961 two year rate. What do you think? 0:04:43.921 --> 0:04:46.881 Yeah, I think that's reflective also of what the sort 0:04:46.881 --> 0:04:50.441 of financial markets have in terms of their anticipation, which 0:04:50.481 --> 0:04:54.281 is roughly three more twenty five basis point rate cuts 0:04:54.361 --> 0:04:58.321 this year, So I think I think then that two 0:04:58.401 --> 0:05:01.241 year rate is broadly reflective of that. 0:05:01.881 --> 0:05:05.641 Soy, did you say you're anticipating three twenty five point 0:05:05.681 --> 0:05:07.961 cuts this year? Three more so point seventy five. 0:05:08.921 --> 0:05:11.681 Yeah, that's that's the market. It's it's a touch less 0:05:11.721 --> 0:05:15.201 than that. But you know, if we deal with round numbers, 0:05:15.041 --> 0:05:18.761 that's that's what they're saying. They're pretty convinced about. And 0:05:18.801 --> 0:05:21.721 again with the help of Adrian at this most recent 0:05:22.481 --> 0:05:26.281 press conference, they're pretty pretty convinced about April and May, 0:05:26.601 --> 0:05:29.241 so a twenty five at each of those and then 0:05:29.561 --> 0:05:33.561 the third one probably in August, the muneted policy statement. 0:05:33.561 --> 0:05:36.961 We get then, but then that is it in terms 0:05:37.001 --> 0:05:39.681 of from the financial markets point of view, that that's 0:05:39.721 --> 0:05:42.441 the end of the using cycle, which then means by 0:05:42.481 --> 0:05:45.241 the time we get to that point, you know, that's 0:05:45.281 --> 0:05:48.281 the bottom and interest rates when it comes to things 0:05:48.321 --> 0:05:50.761 like turn deposits and mortgages. 0:05:50.801 --> 0:05:52.601 I know we've talked about this, but I do want 0:05:52.601 --> 0:05:54.561 to back the back the truck up a little bit 0:05:55.041 --> 0:05:59.441 on what we expect. So you've talked about the markets 0:05:59.481 --> 0:06:02.761 and the anticipations, but three more twenty five point cuts, 0:06:03.481 --> 0:06:05.521 but it was only it was less than a year 0:06:05.561 --> 0:06:10.281 ago that Adrian or also said that we're not they 0:06:10.281 --> 0:06:13.081 weren't going to be cutting points until sometime this year, 0:06:13.241 --> 0:06:16.481 and before then we what have we seen pruned off 0:06:16.521 --> 0:06:18.681 since he spoke about it more than one and a 0:06:18.681 --> 0:06:23.121 half percent or something, or. 0:06:21.441 --> 0:06:23.201 In terms of the easing. 0:06:22.961 --> 0:06:25.481 Cycle, he said, we're not going to be easing things 0:06:25.561 --> 0:06:27.161 until next year, and then all of a sudden he 0:06:27.201 --> 0:06:28.201 was cut, cut, cut. 0:06:28.121 --> 0:06:30.441 And then we've had one hundred and seventy five basis points. Yeah, 0:06:31.001 --> 0:06:34.761 seven five percentage points. Yeah, I mean, I think if 0:06:34.881 --> 0:06:37.921 I mean probably you know, with the benefit of hindsight, 0:06:38.681 --> 0:06:42.721 and you know there'll be differing views among the economist 0:06:42.761 --> 0:06:47.881 community in the media. But that may monetary policy statement 0:06:47.881 --> 0:06:50.801 in the middle of last year, where they were contemplating 0:06:51.681 --> 0:06:55.561 perhaps the need to lift interest rates even higher, just 0:06:55.601 --> 0:06:58.161 does now when we look back on it, look really 0:06:58.281 --> 0:07:01.161 quite strange, because what we know now is that was 0:07:01.161 --> 0:07:04.121 actually a point where the economy had taken a really 0:07:04.241 --> 0:07:08.321 really sort of bad turn. We stepped into that quarter 0:07:08.401 --> 0:07:11.081 Q two of last year, we dropped i think a 0:07:11.121 --> 0:07:14.161 full percentage point in terms of output. Then we followed 0:07:14.161 --> 0:07:16.561 that by another one, which was actually a little more 0:07:17.361 --> 0:07:21.081 so that that middle part of last year was a real, real, 0:07:21.161 --> 0:07:24.961 sort of hurtful moment for many businesses. And to think 0:07:25.001 --> 0:07:27.481 that the Central Bank at that point was contemplating even 0:07:27.561 --> 0:07:31.641 more restrictive interest rates, yeah, it looks it does look 0:07:31.681 --> 0:07:32.241 strange now. 0:07:32.521 --> 0:07:35.761 No, there was a reason to asking that was because 0:07:36.001 --> 0:07:39.121 we have the point is a year ago, the predictions 0:07:39.121 --> 0:07:42.601 were totally wrong, right, okay, And I think actually, to 0:07:42.641 --> 0:07:44.401 be honest, a lot of people in the financial markets 0:07:44.401 --> 0:07:46.401 were like, he's going to be cutting before the end. 0:07:46.481 --> 0:07:49.081 They saw that he was probably wrong he was saying. 0:07:49.641 --> 0:07:51.921 But the reason I asked that was because now people 0:07:51.921 --> 0:07:55.121 will if we're talking about this general certainty that they're 0:07:55.161 --> 0:07:57.201 going to be three more cuts of twenty five percent. 0:07:58.161 --> 0:08:01.361 Obviously you're not giving financial advice, But the vibe I 0:08:01.441 --> 0:08:05.201 get is these predictions are safer to rely on than 0:08:05.361 --> 0:08:06.801 ones we might have seen a year ago. 0:08:07.841 --> 0:08:11.681 I mean, I think what's going on is you probably 0:08:11.801 --> 0:08:16.281 have a more normal set of circumstances for the Reserve 0:08:16.281 --> 0:08:18.761 Bank of New Zealand to be dealing with, for forecasters 0:08:18.761 --> 0:08:20.281 to be dealing with. And don't get me wrong, you 0:08:20.281 --> 0:08:22.441 know there's still going to be eras and people are 0:08:22.441 --> 0:08:24.961 still going to get it wrong, but the margin of 0:08:25.001 --> 0:08:28.481 those errors when you're in a more normal environment. And 0:08:28.521 --> 0:08:29.921 what I mean by that is, you know, we're not 0:08:29.961 --> 0:08:33.241 dealing with a big COVID supply shock for example. No, 0:08:33.401 --> 0:08:35.721 that's doing stuff the global supply chains. Right, this is 0:08:35.801 --> 0:08:38.481 just really an economy here in New Zealand that is 0:08:38.521 --> 0:08:42.881 now feeling the effects very much of those higher interest rates. 0:08:43.041 --> 0:08:45.801 And it's then now a matter of okay, how quickly 0:08:45.961 --> 0:08:50.081 can the Central Bank normalize those and perhaps maybe even 0:08:50.561 --> 0:08:53.881 needs to put them at a level which is helpful, 0:08:53.961 --> 0:08:56.121 you know, provides some stimulus to the economy. And I 0:08:56.161 --> 0:09:00.201 think that's where the debate is. Are less about, you know, 0:09:00.441 --> 0:09:03.361 the seventy five basis points, the three twenty five basis 0:09:03.361 --> 0:09:06.801 point cuts, but perhaps more more about is that going 0:09:06.881 --> 0:09:09.601 to be enough given? And there'll be many people listening 0:09:09.601 --> 0:09:12.881 who will be saying wow, you know, like I know 0:09:13.041 --> 0:09:16.761 people or I've experienced myself, you know, ongoing job losses 0:09:16.881 --> 0:09:20.441 or business closures. So you know, it does beg that 0:09:20.521 --> 0:09:24.641 question whether interest rates will get low enough to actually 0:09:24.681 --> 0:09:25.481 provide that help. 0:09:26.081 --> 0:09:28.681 Okay, just one other, because we've got a lot to 0:09:28.721 --> 0:09:33.641 talk about on this What about for people who follow 0:09:34.001 --> 0:09:37.601 international news and we have a we have a change 0:09:37.601 --> 0:09:41.441 of government in the States obviously, and Trump Trump is unpredictable. 0:09:41.481 --> 0:09:43.561 I don't think anyone who can argue with that. We've 0:09:43.601 --> 0:09:46.481 got this uncertainty around what's going to happen with the 0:09:46.521 --> 0:09:50.441 peace process in Ukraine. We've got Chinese frigates, you know, 0:09:50.721 --> 0:09:53.961 behaving in this mischievous way off the coast of Australia. 0:09:54.241 --> 0:09:58.121 How much. What are the sorts of things that would 0:09:58.161 --> 0:10:00.761 throw a spanner in the works. Maybe the most obvious 0:10:00.801 --> 0:10:03.481 thing is the question of tariffs and trade. When it 0:10:03.481 --> 0:10:06.121 comes to interest rates here, cashwits. 0:10:07.121 --> 0:10:10.121 Yeah, I mean that's I think where while we might 0:10:10.241 --> 0:10:14.321 characterize our situation here as being you know, more normal, 0:10:14.681 --> 0:10:17.481 in one that we have perhaps more confidence in predicting, 0:10:17.601 --> 0:10:21.401 we're dealing with this really uncertain global picture for all 0:10:21.401 --> 0:10:25.401 those reasons you mentioned. If we think about just tariffs, 0:10:26.121 --> 0:10:30.041 the main impact for US will be through the way 0:10:30.081 --> 0:10:34.081 that could lower global growth, you know, lower the prospects 0:10:34.081 --> 0:10:38.721 of our trading partners, particularly if it's something where you'll 0:10:38.721 --> 0:10:43.281 see retaliation to the US tariff, so perhaps from China, 0:10:43.721 --> 0:10:47.081 you know, from Europe. All that will do, from our 0:10:47.081 --> 0:10:50.441 point of view, is lower that global growth picture and 0:10:50.681 --> 0:10:54.041 make things a tougher environment for our exporters to go 0:10:54.121 --> 0:10:58.281 and sell their products into. So I think that's the headline, 0:10:59.241 --> 0:11:04.121 which is it's not a particularly positive development on that 0:11:04.201 --> 0:11:05.721 front for US, but I guess. 0:11:05.761 --> 0:11:07.721 But as a currency strategist, I can ask you this 0:11:07.761 --> 0:11:09.681 as well, how does it? What are the events you 0:11:09.721 --> 0:11:13.041 would be looking for when you as informing your view 0:11:13.081 --> 0:11:13.881 on currencies. 0:11:15.201 --> 0:11:18.761 Yeah, I think that one is one where so in 0:11:19.921 --> 0:11:24.281 a more orderly version of events there which is where 0:11:25.241 --> 0:11:28.001 we have largely this bang about the US wanting to 0:11:28.001 --> 0:11:31.161 impose tariffs and maybe others less so, but that is 0:11:31.201 --> 0:11:36.081 then introducing inflation into their economy and lowering their growth 0:11:36.481 --> 0:11:38.521 because you know the cost of those imported goods is 0:11:38.561 --> 0:11:41.441 going up. You know, that's something which you would say, well, 0:11:41.521 --> 0:11:45.361 we're going to look better. You know, our economy is 0:11:45.361 --> 0:11:48.201 going to look a bit better than one like the 0:11:48.321 --> 0:11:50.801 US where they're doing that, and that would normally be 0:11:50.841 --> 0:11:53.161 something I mean, you could say, well, our currency should 0:11:53.481 --> 0:11:56.081 perhaps appreciate slightly even to the US dollar. Now there's 0:11:56.081 --> 0:11:59.081 a butt coming. You're probably sensing that the butt is 0:11:59.241 --> 0:12:03.561 if it develops into all our trade war, you know, 0:12:03.601 --> 0:12:06.561 a global trade war that is not an environment that 0:12:06.601 --> 0:12:09.281 our currency does well. Then you know, we we need 0:12:09.321 --> 0:12:12.161 the world to be feeling good. We need global investors 0:12:12.201 --> 0:12:15.241 to to feel good about funding us. You know, we 0:12:15.321 --> 0:12:17.321 need the rest of the world's the world's money, and 0:12:17.961 --> 0:12:22.521 if they start to feel uncertain, then that's usually an 0:12:22.601 --> 0:12:25.361 environment we're the key we weaken. So that's that's the 0:12:25.441 --> 0:12:27.361 kind of caveat to that. 0:12:27.881 --> 0:12:29.961 Okay, I got one last question. Then we're going to 0:12:30.001 --> 0:12:31.721 move on, and because we do have a lot to cover. 0:12:31.801 --> 0:12:35.201 But when it comes to the cash rate, what is 0:12:35.241 --> 0:12:37.841 the This is a really this will sound like a 0:12:37.881 --> 0:12:40.041 sort of dumb over a simplified question, but I'm going 0:12:40.041 --> 0:12:42.881 to do it anyway. What generally, so if the cash 0:12:42.961 --> 0:12:48.281 rate now is three point seventy five, what sort of 0:12:49.121 --> 0:12:51.641 what's the difference between a cash rate and what we 0:12:51.681 --> 0:12:54.241 can expect the banks to be offering sort of between 0:12:54.281 --> 0:12:57.201 six months and two or three years. What's their type 0:12:57.201 --> 0:12:59.721 of how do they how many points do we usually 0:12:59.761 --> 0:13:02.841 see as a markup? If I can put it crudely, Yeah, 0:13:02.881 --> 0:13:03.641 it's a good question. 0:13:03.801 --> 0:13:07.281 So what you would want is you say, you say 0:13:07.281 --> 0:13:10.201 someone's thinking about a six month term deposit rate, you know, 0:13:10.241 --> 0:13:13.401 what should I expect you know, that to be for 0:13:13.481 --> 0:13:16.761 a given cash rate setting. The big thing is about, 0:13:17.001 --> 0:13:20.961 obviously what we've just been saying, right, what is the 0:13:21.001 --> 0:13:24.761 expectation for the cash rate moves over that period of time. 0:13:24.881 --> 0:13:27.681 And so at the moment you've got this situation where 0:13:28.681 --> 0:13:32.681 embedded in a six month rate is these three or 0:13:32.721 --> 0:13:36.041 are these three twenty five basis point rate cuts? So 0:13:37.001 --> 0:13:40.881 it's it's not an easy thing to sort of get 0:13:41.041 --> 0:13:43.241 get a measure of. But you know, I think if 0:13:43.241 --> 0:13:47.361 we're talking rough numbers, somewhere in the region of you know, 0:13:47.521 --> 0:13:52.281 one hundred basis points or for deposits a percentage point 0:13:52.481 --> 0:13:55.121 to Yeah, that's right to wear term deposit rates are. 0:13:55.281 --> 0:13:57.241 I don't think that's what about for mortgages? 0:13:58.441 --> 0:14:02.041 Mortgages it's usually a bit more. Yeah, So you're kind 0:14:02.041 --> 0:14:05.241 of with your reference to the four ninety nine. But 0:14:05.281 --> 0:14:08.401 if I look at, say, like that's a two year 0:14:08.521 --> 0:14:10.521 rate for an Z that the one that you mentioned, 0:14:10.561 --> 0:14:12.921 and so if I look at where wholesale rates are 0:14:13.041 --> 0:14:16.961 in the market right now, they're about three sixty. Yeah, 0:14:17.241 --> 0:14:19.081 So you know, you call that one hundred and forty 0:14:19.121 --> 0:14:22.441 basis points one point four percentage points above. 0:14:22.961 --> 0:14:26.041 So if the cash rate with three percent, would would 0:14:26.041 --> 0:14:28.121 people be expecting that they might be able to see 0:14:28.121 --> 0:14:30.441 even better interest rates like four point twenty five four 0:14:30.441 --> 0:14:31.801 point five percent sort of thing. 0:14:32.881 --> 0:14:39.561 I think it depends. I think it depends on It's 0:14:39.641 --> 0:14:44.441 that forward pricing, right, So the market I think has 0:14:45.121 --> 0:14:48.321 got itself to a point of pricing the using cycle 0:14:48.401 --> 0:14:51.201 well in terms of what the vindt is communicated, I 0:14:51.241 --> 0:14:54.361 think you know, what we're seeing from the mortgage rates 0:14:54.401 --> 0:14:59.521 side is broadly reflective of that. Where I think there 0:14:59.721 --> 0:15:02.801 is more room and many many commentators have talked about 0:15:02.841 --> 0:15:06.521 this is that term deposit rate have really lagged in 0:15:06.601 --> 0:15:10.161 terms of the pace with which they've fallen through this 0:15:10.441 --> 0:15:11.441 easing cycle FES. 0:15:11.721 --> 0:15:13.601 So probably why Adrian told every went off. 0:15:14.721 --> 0:15:17.401 Yeah, I mean it's an interesting thing because you know, 0:15:18.361 --> 0:15:24.161 this is banks actually being kind. This is this is 0:15:24.201 --> 0:15:28.801 then giving you a return on your savings which is 0:15:29.001 --> 0:15:31.601 slightly out of line with these other rates we've been 0:15:31.601 --> 0:15:34.481 talking about in terms of wholesale rates and what mortgage 0:15:34.521 --> 0:15:37.161 rates have done. So this I think more is banks 0:15:37.201 --> 0:15:40.561 wanting to make sure they keep these deposits and keep 0:15:40.601 --> 0:15:43.361 these depositors. You know, the people that sit behind them 0:15:44.001 --> 0:15:47.761 because you know, that's a very very important source of 0:15:47.841 --> 0:15:49.201 funding four banks. 0:15:50.161 --> 0:15:52.641 Yeah, I keep forgetting I for kept forgetting that. On 0:15:52.681 --> 0:15:55.041 the other side of the scale, there are the savers 0:15:55.241 --> 0:15:58.681 who who we all remember when interest rates were through 0:15:58.681 --> 0:16:00.641 the floor, people were like, I'm not getting anything from 0:16:00.641 --> 0:16:02.881 the money. Basically you're lucky for you get points seventy 0:16:02.921 --> 0:16:07.001 five percent. So I forget that. There's that side of it, 0:16:07.081 --> 0:16:09.281 isn't it. And so that's the banks encouraging them to 0:16:09.321 --> 0:16:10.281 keep their money with them. 0:16:11.001 --> 0:16:14.521 Yeah, that's right. And you know for those savers, you know, 0:16:14.561 --> 0:16:19.001 they've just started to now experience sub five percent term 0:16:19.041 --> 0:16:22.921 deposit rates. I think that's probably been the latest development 0:16:22.961 --> 0:16:27.081 for them. And so I think with that, we for example, 0:16:27.161 --> 0:16:31.441 are experiencing maybe a little bit more inquiry. You know, what, 0:16:31.721 --> 0:16:35.481 what can you do in the case that you're not 0:16:35.521 --> 0:16:38.441 happy with turn deposit rates? And which is what we 0:16:38.481 --> 0:16:42.161 saw obviously in COVID. It was very fast that that 0:16:42.281 --> 0:16:46.961 fall and those those deposit rates, and the real change 0:16:47.241 --> 0:16:50.921 in kind of behavior from from savers was when they 0:16:50.921 --> 0:16:53.041 went through one percent time. I don't know if you 0:16:53.081 --> 0:16:55.681 remember that, but you know, six month term deposit rates 0:16:55.721 --> 0:16:58.281 went through one percent and that was for so many people, 0:16:58.321 --> 0:17:00.241 that was the final straw and they said, look, I've 0:17:00.241 --> 0:17:02.001 just got to find something different. 0:17:01.681 --> 0:17:04.401 Then get into the shares or something. Yeah, hey, well 0:17:04.641 --> 0:17:06.281 just hold the Hamish will be back in this moment. 0:17:06.281 --> 0:17:09.201 We're with Hamish pepperes as a director and fixed income 0:17:09.441 --> 0:17:13.001 currency strategists at Harbor Asset Management, and we're going to 0:17:13.121 --> 0:17:16.001 actually discuss what this means for whether, in fact, where 0:17:16.041 --> 0:17:19.081 the money where the cash rate's gone, is that stimulatory 0:17:19.321 --> 0:17:21.041 for the economy or do we need to cut further 0:17:21.081 --> 0:17:24.481 before we really see something some significant difference there. And 0:17:24.561 --> 0:17:27.041 if you've got any questions for Hamish, give us a call. 0:17:27.281 --> 0:17:29.521 I wait, one hundred eighty ten to eighty. We'd love 0:17:29.561 --> 0:17:31.281 to hear from you. We'll back in just a moment. 0:17:33.961 --> 0:17:38.201 Not taking Marvel singing Sweeden Home Alabama. 0:17:38.841 --> 0:17:42.521 Sum let's right back. We can collective this is smart money. 0:17:42.601 --> 0:17:45.241 My guest is Hamish Pepper. He's fixed income and currency 0:17:45.281 --> 0:17:49.441 strategists strategist at Harbor Asset Management. Just before we got 0:17:49.441 --> 0:17:53.361 to our calls, Hamish, the question that the a lot 0:17:53.401 --> 0:17:56.161 of people would consider is that cut in the ocr 0:17:57.121 --> 0:17:59.881 is it something that is viewed as being of a 0:17:59.961 --> 0:18:02.681 stimulation to the economy of we or is we not there? 0:18:04.281 --> 0:18:07.001 No, we're not yet. So the way we talk about 0:18:07.001 --> 0:18:11.321 it is that there's less sort of restriction being imposed 0:18:11.361 --> 0:18:16.041 on the economy now, but there still is some. So 0:18:16.121 --> 0:18:18.841 that that's part of the reason why the rbn DID 0:18:18.881 --> 0:18:22.521 themselves are communicating in their forecast that they're going to 0:18:22.601 --> 0:18:25.401 keep going, they're going to keep cutting down towards three 0:18:25.441 --> 0:18:26.681 percent later this year. 0:18:26.921 --> 0:18:29.041 So why is three percent seen as being if we 0:18:29.081 --> 0:18:31.241 get there, which we're assuming we hopefully will by the 0:18:31.281 --> 0:18:33.201 end of the year. Why is that scene as being 0:18:33.241 --> 0:18:36.841 stimulatory as opposed to not at the moment? 0:18:37.481 --> 0:18:41.201 Well, it's interesting, actually, in their view, it's not necessarily 0:18:41.721 --> 0:18:44.161 a stimulatory once they get to three. There's a there's 0:18:44.161 --> 0:18:49.241 a big range of what they call neutral, so a 0:18:49.361 --> 0:18:52.161 neutral cash rate or a neutral interest rate. We're basically 0:18:52.161 --> 0:18:54.601 the entrant rate is not doing anything. It's not adding 0:18:54.601 --> 0:18:57.161 to activity, it's not detracting from it's not adding to inflation, 0:18:57.241 --> 0:18:59.401 it's not detracting from it. And there's sort of this 0:18:59.801 --> 0:19:03.961 you know, sort of magical, you know, happy place, but 0:19:04.241 --> 0:19:07.441 really there's huge uncertainty around exactly where that is. And 0:19:07.481 --> 0:19:09.401 so I think what they're doing is saying we're going 0:19:09.481 --> 0:19:13.761 to step reasonably quickly towards that and look at what 0:19:13.801 --> 0:19:16.161 the economy is doing, because that's one of the best 0:19:16.161 --> 0:19:20.041 ways to know, you know, what your policy settings are 0:19:20.121 --> 0:19:24.321 actually are doing. You know, are they you know, becoming 0:19:24.321 --> 0:19:27.561 stimilitary And it might be the case that they get 0:19:27.561 --> 0:19:29.801 to three and they start to see a real turnaround 0:19:30.521 --> 0:19:33.601 an activity and there you know, it answers a question 0:19:33.681 --> 0:19:37.001 for them, But it also could be that they need to. 0:19:36.921 --> 0:19:38.601 Do more, Yeah, because I guess you know, they get 0:19:38.601 --> 0:19:40.481 the number of what you can borrow and the cash rate, 0:19:40.521 --> 0:19:42.401 and then you look at other factors that of course 0:19:42.441 --> 0:19:45.921 set the stimulat trees, such as attracting overseas investment. And 0:19:45.961 --> 0:19:48.321 I mean it's interesting the balance, isn't it as to 0:19:48.361 --> 0:19:50.241 what the magic sort of the sweet spot is. 0:19:51.361 --> 0:19:53.801 Yeah, totally. And I think the thing that's holding them back. 0:19:53.801 --> 0:19:56.841 A question we often get and maybe there's some people 0:19:56.881 --> 0:19:58.881 listening who have this this question in their head, is 0:19:59.401 --> 0:20:02.121 if they know that three percent is where they're heading, 0:20:02.481 --> 0:20:06.001 why not just get there today? You know? And Adrian 0:20:06.041 --> 0:20:08.201 has been that kind of governor in the past to 0:20:08.841 --> 0:20:12.441 you know, basically if his economics department or the Manata 0:20:12.481 --> 0:20:14.601 Police committee are telling him something, then he'll just do it. 0:20:15.081 --> 0:20:19.961 But the niggly bit is that inflation from the domestic standpoint, 0:20:20.121 --> 0:20:23.081 you know, that sort of non tradeable stuff is still 0:20:23.121 --> 0:20:24.481 a little high. 0:20:24.561 --> 0:20:26.801 Is there anything in once but and twice shy because 0:20:26.801 --> 0:20:28.561 he has been sort of a bit more gung home 0:20:28.601 --> 0:20:30.201 with things and he kept it too high. And so 0:20:30.521 --> 0:20:32.961 does do you think it's affected him? Just wanting to 0:20:32.961 --> 0:20:35.041 be easy as she goes with you know, let's just 0:20:35.121 --> 0:20:36.761 turn the turn the tiller slowly. 0:20:38.521 --> 0:20:41.801 I mean it's possible. I mean, it is possible. I 0:20:41.841 --> 0:20:44.321 think there's a committee which is. 0:20:44.441 --> 0:20:47.601 Sounds like you think it's not really realistic though possible. 0:20:47.241 --> 0:20:51.161 But yeah, I think it's more the committee speaking honestly. 0:20:51.281 --> 0:20:53.241 I think you've got a range of voices there and 0:20:53.761 --> 0:20:57.041 it's working well because it's highlighting, you know, the risks 0:20:57.041 --> 0:21:00.201 that you run if you do just you know, cut 0:21:00.201 --> 0:21:03.521 one hundred and fifty bass toward get to three percent. 0:21:03.601 --> 0:21:06.281 Yeah, get a bit of emotionalist area and everyone suddenly 0:21:06.761 --> 0:21:09.121 cashing into the getting into the property market or something 0:21:09.161 --> 0:21:10.801 and pushing it, pushing it in the way we don't 0:21:10.801 --> 0:21:11.401 want to see it going. 0:21:11.761 --> 0:21:13.121 Well, it's a scenario exactly. 0:21:14.201 --> 0:21:15.001 It's take some calls. 0:21:15.081 --> 0:21:18.681 Shane, Hello, oh hi there, I just had a question 0:21:18.721 --> 0:21:21.161 for Hamish, you know, to do with the investors. You know, 0:21:21.161 --> 0:21:24.641 we talked about, you know, the interest rates for the investors, 0:21:24.881 --> 0:21:27.281