Speaker 1: Kyoda.
Speaker 2: I'm Chelsea Daniels and this is the Front Page, a
Speaker 2: daily podcast presented by the New Zealand Herald. The Reserve
Speaker 2: Bank has delivered their last judgment on the official cash
Speaker 2: rate and surprise, surprise, there's been no change. The Reserve
Speaker 2: Bank still says it won't be cutting rates anytime soon,
Speaker 2: but economists believe that such a cut will need to
Speaker 2: come later this year. It comes as the economic outlook
Speaker 2: for New Zealand continues to look bleak and more people
Speaker 2: are heading overseas or to the job seeker Q. Today
Speaker 2: on the Front Page, we're joined by ends at Herald
Speaker 2: Business Editor at Large Liam Dan to discuss what the
Speaker 2: OCR rate says about the state of our economy. Can
Speaker 2: you just remind us what the purpose of the official
Speaker 2: cash rate or OCR announcements are? What does it dictate
Speaker 2: in our economy?
Speaker 3: What effectively dictates the cost of borrowing in the economy
Speaker 3: and the value of saving? I guess because it's the
Speaker 3: interest rate, the official interest rate going up and down,
Speaker 3: the one that does the most to determine what the
Speaker 3: banks are going to charge us for our mortgage or
Speaker 3: give us on our deposits. If we've got savings. What
Speaker 3: that does is effectively allow the economy to speed up
Speaker 3: and get more active if interest rates are low, because
Speaker 3: it's cheaper to borrow and do things and less lucrative
Speaker 3: to keep money in the bank. And of course, if
Speaker 3: you push interest rates up, as they have done in
Speaker 3: the last year or so, then it's harder to borrow
Speaker 3: and it's harder for business to do stuff. You see,
Speaker 3: the housing markets slow down, so the economy slows, people
Speaker 3: save more, and all of that adds up to taking
Speaker 3: inflation out of the economy, whereas low interest rates tend
Speaker 3: to make things more inflationary.
Speaker 2: Unsurprisingly, the ocr remains unchanged at five point five percent
Speaker 2: for the eighth consecutive time. I guess this isn't a
Speaker 2: big surprise, is it. But what is their strategy for
Speaker 2: keeping things so rigid? Well?
Speaker 3: I think the strategy is that they've pushed the rate
Speaker 3: up to really suck the life out of the economy
Speaker 3: or the activity out of the economy, and really try
Speaker 3: and hit that high inflation. But they know that it
Speaker 3: takes quite some time for that to work because we're
Speaker 3: all on our fixed mortgages, you know, So people have
Speaker 3: two year mortgage at fixed mortgages and so on. So
Speaker 3: it takes a long time for that sort of pain
Speaker 3: from the higher interest rates to flow through to people's pockets.
Speaker 3: And that's obviously happening now. It's been over a year
Speaker 3: we've been at this peak of five five. But you know,
Speaker 3: they got their fast and then they decided they want
Speaker 3: to wait and watch the economy and see how quickly
Speaker 3: inflation was coming out. But you know, there's a risk
Speaker 3: it's a balancing act if they go too high. If
Speaker 3: they kept going, they'd certainly squash inflation, but they might
Speaker 3: push the economy into such a deep recession that we
Speaker 3: were stuck there for longer than we'd like. And of
Speaker 3: course if they don't they cut to early, or they
Speaker 3: don't go high enough, then you know, the inflation just
Speaker 3: keeps simmering away.
Speaker 2: Is there any sign of movement on their side around
Speaker 2: future interest rate cuts?
Speaker 3: Yeah, well that was probably the big news from the
Speaker 3: announcement yesterday. So the tone, you know, we knew that
Speaker 3: the rate wasn't going to be moved, but you get
Speaker 3: the statement from the Reserve Bank and everyone's pouring over
Speaker 3: every word of that statement for clues, and there's a
Speaker 3: few lines there that suggests that they're softening their stants,
Speaker 3: that they are seeing some signs that the pain is
Speaker 3: moving through the economy quite quickly. There was a really
Speaker 3: grim business confidence survey, for example, and so that's, you know,
Speaker 3: just a few things in the tone of the language
Speaker 3: used by the Reserve Bank and this latest announcement have
Speaker 3: convinced the economists and the markets that we're going to
Speaker 3: get rate cuts sooner than the Reserve Bank has previously forecasts.
Speaker 3: They've got forecasts out there a sort of September next year,
Speaker 3: which seems pretty tough. No one's really believed it. But
Speaker 3: this is the first time we've seen the Reserve Bank
Speaker 3: offer some sort of signs that maybe they are softening
Speaker 3: their stance and perhaps we're heading to more like cuts
Speaker 3: in November or February, which is where most of the
Speaker 3: bank economists are picking things at the moment.
Speaker 4: Well, certainly we've seen data in the last couple of
Speaker 4: weeks suggesting that there's not as much additional inflation pressure
Speaker 4: in the economy. That's a good news story, and certainly
Speaker 4: some economic forecasters have been pulling back their expectations, with
Speaker 4: at least a couple now picking that November would be
Speaker 4: the first interest rate cut. To be fair, we're still
Speaker 4: a little bit in the dark as to how much
Speaker 4: and how the Reserve Bank can flip flop from one
Speaker 4: end to the other so quickly, and we're not therefore
Speaker 4: confident in knowing if we're going to keep getting that
Speaker 4: consistent view or if things might change again in six
Speaker 4: weeks time.
Speaker 2: Why is there this big divide at the moment between
Speaker 2: the bank and economists, Like you said, the bank is
Speaker 2: still saying September next year, but economists are predicting what
Speaker 2: November ish. Why is there such a big gap.
Speaker 3: Yeah, it's interesting because it sort of seems very confusing
Speaker 3: to the outside public looking and I'm sure I think
Speaker 3: you know, well, some people would say that it shouldn't
Speaker 3: be there, and that maybe the markets and the economists
Speaker 3: are too optimistic, and maybe the Reserve Bank's too pessimistic,
Speaker 3: and they've got to come together. There's an element of
Speaker 3: the Reserve bank caution being built into the where the
Speaker 3: Reserve Bank forecast things, you know, the bank economists and
Speaker 3: the market investors who sort of set the daily price
Speaker 3: of future interest rates, they're e actively taking bets and
Speaker 3: the economists are taking a punt and is they haven't
Speaker 3: got skin in the game, so they can change their
Speaker 3: forecast very quickly at any time. Whereas the Reserve Bank
Speaker 3: has to get it right. They have to send the
Speaker 3: right signals. And the signal they've wanted to send is
Speaker 3: that they're all about squashing inflation. They're giving inflation no quarter.
Speaker 3: They are far more concerned about inflation than they are
Speaker 3: about the downturn to the economy. That was the signal.
Speaker 3: And of course we don't get a full another full
Speaker 3: set of forecasts from the Reserve Bank until their full
Speaker 3: monetary policy statement in August, but the tone in this
Speaker 3: one was enough that I think it's being read as
Speaker 3: a slight pivot towards that softer stance and moving towards
Speaker 3: where the rest of the market sees things might land.
Speaker 2: If I had a mortgage and I was following these
Speaker 2: ocr rates in these and it remains unchanged, and I'm
Speaker 2: looking at what the economists are saying and what the
Speaker 2: Reserve Bank is saying, How will it affect my back pocket?
Speaker 2: What should I be looking for?
Speaker 3: Well, I guess you know, when you refix, you're taking
Speaker 3: a bit of a punt on what you think might
Speaker 3: happen to interest rates in the future. I mean, I
Speaker 3: would caution that people should certainly fix their rate for
Speaker 3: their own personal circumstances and how much they can afford,
Speaker 3: and how much they can afford. If the rate was
Speaker 3: to not come down, you wouldn't want to bet on
Speaker 3: it coming down because something could happen, you know, oil
Speaker 3: prices could spike or something like that that requires the
Speaker 3: Reserve Bank to change its mind again. But you know, overall,
Speaker 3: I think it looks like you can sort of start
Speaker 3: to assume that we're on track as of today. Anyway,
Speaker 3: it looks like we're on track for rates to start
Speaker 3: easing probably early next year. You know, I'm just weary
Speaker 3: of anyone sort of betting on future movements because you
Speaker 3: need to be aware that things can change overnight. You know,
Speaker 3: the geopolitical situation, all sorts of things can unwind it.
Speaker 3: The standard model would be to sort of probably fix
Speaker 3: a bit shorter now if it was coming up, and
Speaker 3: not get locked into sort of The banks do tend
Speaker 3: to offer good looking, you know, the best deals on
Speaker 3: those longer rates, but they kind of you know, if
Speaker 3: you get stuck on a long rate, you're not going
Speaker 3: to benefit as they do come down, So that would
Speaker 3: be the sort of thinking with all those sort of
Speaker 3: caveats that have to put there for legal reasons.
Speaker 2: In terms of betting on that rate drop, our colleague
Speaker 2: Geno tib Strainey reported that there's been an upteck in
Speaker 2: mortgage holders betting on a rate drop, with an increase
Speaker 2: in six month terms at the start of the year.
Speaker 5: Proportionately, a lot more of the new mortgage lending was
Speaker 5: going to people fixing for relatively short periods. So that's
Speaker 5: seventeen percent for owner occupiers. For investors that was even
Speaker 5: higher at twenty two percent, quite a big jump from
Speaker 5: where it had been.
Speaker 2: Are we basically gambling on house prices at the moment?
Speaker 3: Well, it's a sort of funny sort of game we
Speaker 3: play in New Zealand with fixed rates that we think
Speaker 3: we can somehow game the market, you know. Yeah, I
Speaker 3: mean it's logical that you would be looking at shorter
Speaker 3: terms right now because that's the sort of consensus. The
Speaker 3: narrative is that we start to see rates come down
Speaker 3: through twenty twenty five, and so you don't want to
Speaker 3: be locked into two years at a higher rate, But
Speaker 3: we don't know how far they'll come down. And as
Speaker 3: soon as you start looking out over about a year,
Speaker 3: it's very hard to predict what's going to happen to
Speaker 3: global inflation and all those things. So yeah, I always
Speaker 3: think it's odd. In some countries. We've talked about this before.
Speaker 3: In Australia, people tend to float more and just rise
Speaker 3: and fall with whatever's going on in the market, And
Speaker 3: in Europe and America they take much longer term fixed
Speaker 3: rates and just sit there because in the end, it
Speaker 3: has to be something that you can manage. You don't
Speaker 3: want to get caught out, as some people have with
Speaker 3: the super low interest rates for example a couple of
Speaker 3: years ago, and you know, people get caught out because
Speaker 3: they misread it. They thought they would stay low for longer,
Speaker 3: or they thought that the spike was not going to
Speaker 3: be as bad, and they're caught with mortgage repayments they
Speaker 3: can't afford. So the first thing to do is really
Speaker 3: just make sure that you've tested what you can afford
Speaker 3: to pay on your mortgage. On either side of all
Speaker 3: the market expectations, a little bit on the negative, a
Speaker 3: little bit on the positive of where those forecasts are
Speaker 3: made because they sort of more often than not, they'll
Speaker 3: land one side or the other of where people are
Speaker 3: exactly predicting. You know, there's no guarantees about the future.
Speaker 2: How is the economy firing at the moment, and is
Speaker 2: this Duvish ocr decision having a big impact on how
Speaker 2: it's tracking? And my secondary question, what does duvish and
Speaker 2: a hawkish mean?
Speaker 3: Those are good questions. Yeah, Hawkish means you really really
Speaker 3: hate inflation and you are going to do everything you can.
Speaker 3: You think you're more worried about inflation generally, so you're
Speaker 3: going to keep monetary policy tighter, which is jargon as well.
Speaker 3: I know, you're basically going to keep interest rates higher
Speaker 3: because your big concern is inflation. And if you're duvish,
Speaker 3: you feel more relaxed about inflation, and you're going to
Speaker 3: go with lower interest rates and try and stimulate the
Speaker 3: economy and get the money circulating around the economy a
Speaker 3: bit more. I mean, they're sort of old fashioned terms
Speaker 3: that we borrow from the US military, I think in
Speaker 3: terms of how people are feeling about going to war
Speaker 3: or not. So I guess it's the war on inflation.
Speaker 3: I mean, I wouldn't want to overread this week's decision.
Speaker 3: It's in the tone, it's in the language. It does
Speaker 3: flow through to the markets very quickly. So we probably
Speaker 3: see some pricing move forward and expectations in the market
Speaker 3: that rates will come down, and that actually can because
Speaker 3: of some of that pricing that goes on does affect
Speaker 3: your mortgage rate. That actually can put a bit of
Speaker 3: downward pressure on mortgage rates. And so if the markets
Speaker 3: really believe they're coming down, then they sort of start
Speaker 3: to But that's something that doesn't help the Reserve Bank
Speaker 3: because and that's one of the reasons that they like
Speaker 3: to you know, I thought they might have stayed talking
Speaker 3: tougher for a bit longer, is that, you know, you
Speaker 3: start to lose effectiveness if the markets get ahead of
Speaker 3: you and start pushing the rates down. But I guess
Speaker 3: what it's saying in the commentary there is that the
Speaker 3: Reserve Bank is seeing real signs of pain in the economy.
Speaker 3: They are listening some of those signs of credit to stress,
Speaker 3: business liquidations, all that sort of stuff. It is adding up.
Speaker 3: I would say that we're just a bit shy of
Speaker 3: some really good solid data. There's you know, the full
Speaker 3: inflation figure comes out next week, so we haven't got
Speaker 3: really solid data to base the stuff on yet. But
Speaker 3: you know, you've only got to talk to anyone in
Speaker 3: business or get out and about in Central Auckland or
Speaker 3: something at the moment to know that it's really tough.
Speaker 3: It's definitely a very recessionary feeling economy, even though technically
Speaker 3: the top line might not be. But it feels like
Speaker 3: a pretty grim economy right now. And the longer rates
Speaker 3: say where they are, the worse that's going to get.
Speaker 3: So the Reserve Bank clearly paying some attention to that
Speaker 3: and hopeful that that's working on inflation. But we haven't
Speaker 3: seen yet the proof that that's working on inflation, so
Speaker 3: that's the caveat. We're still waiting to see those inflation
Speaker 3: numbers really hit the target.
Speaker 2: Other figures out this week four five hundred more people
Speaker 2: have signed up to the job Seeker benefit since the
Speaker 2: start of May.
Speaker 1: Is that worrying?
Speaker 2: Yes?
Speaker 3: And Noah, it's probably in line with expectations. So it's
Speaker 3: a tough one. It's not just people losing their jobs.
Speaker 3: Some people losing their jobs, it's people coming out of university,
Speaker 3: in school and not being able to get a job
Speaker 3: signing up to Job Seeker. We expect the unemployment rate
Speaker 3: to rise by a few more tens of thousands, which
Speaker 3: sounds brutal, but that's really weird. The current consensus thinking is,
Speaker 3: and that would take it up to about five point
Speaker 3: three percent unemployment rate, five point five maybe, and that
Speaker 3: is our historic average. Historical average in this country is
Speaker 3: around five point five percent unemployment. So we're coming off
Speaker 3: a low base. We're coming off a time of really
Speaker 3: high employment when it was really easy to get a job.
Speaker 3: Doesn't make it, you know, any better for anyone losing
Speaker 3: their job. And if you've got a big mortgage right now,
Speaker 3: to lose your job, there isn't going to be a
Speaker 3: lot of other work out there. There's a squeeze on
Speaker 3: hiring for a lot of companies, and so it feels
Speaker 3: very tough because we're in that transition into a higher
Speaker 3: unemployment economy. But overall, when you step back, it's it's
Speaker 3: not as grim as many times throughout New Zealand's history
Speaker 3: when unemployments has spiked to you know, seven or eight
Speaker 3: percent after the GFC, or you know, ten or eleven
Speaker 3: percent in the early nineties. So in terms of you know,
Speaker 3: people worry about, is this the worst economy ever? Is
Speaker 3: society crumbling and all that sort of stuff. Well, you know,
Speaker 3: you have to step back a bit and remember that
Speaker 3: we've we've lived through worse, or I've certainly lived through worse.
Speaker 1: Our economy could be pushing more Kiwis to see greener
Speaker 1: pastures abroad. Statsen's ed figures show a net migration loss
Speaker 1: of sixty thousand Kiwis in the year to May, the
Speaker 1: biggest loss on record. Numbers of citizens leaving are at
Speaker 1: a record high of eighty five thousand, six hundred people.
Speaker 2: We've also seen more worrying migration data about how many
Speaker 2: people are flocking overseas. What can you tell us about that?
Speaker 3: Yeah, I mean, if I was going to worry about
Speaker 3: one statistic, I'd probably be more concerned about that. It's
Speaker 3: hard to know that. You know, you have got the
Speaker 3: borders opening up after COVID and probably still a large
Speaker 3: number of young Kiwis heading off on Oe's that they
Speaker 3: weren't able to do, going off to London and around
Speaker 3: the world to work. But there's also a growing number
Speaker 3: of people going to Australia for higher wages, seeing more
Speaker 3: opportunity there, and the idea that young New Zealanders don't
Speaker 3: see opportunity is worrying. And there's two aspects of that.
Speaker 3: One is we're in this downturn right now and that
Speaker 3: might might start to look a bit better a year
Speaker 3: from now, so that's hope. That's just cyclical. But the
Speaker 3: other one is sort of what Prome Minister when he
Speaker 3: was campaigning a pre election called New Zealand losing its
Speaker 3: mojo and he was going to help us get it back.
Speaker 3: So hopefully he's working on that. That just that sense
Speaker 3: of what we'll you know, lead the growth and the
Speaker 3: good feeling about New Zealand's economy in the next ten
Speaker 3: years or so. Where's all that vibe going to come from.
Speaker 3: Which industries are going to be there for young people
Speaker 3: to get into and find them make an amazing life
Speaker 3: for themselves in New Zealand. And that's a bit tougher
Speaker 3: and you know, but it does pile on and you know,
Speaker 3: the gloomy winter bottom of an economic cycle, a lot
Speaker 3: of people sort of heading off after in the post
Speaker 3: COVID wave, so you know, you've got to look through
Speaker 3: the mix of that. Also, I would mention that we're
Speaker 3: not losing population. We're still those same stats showed that
Speaker 3: we're still getting a lot of migrants in eighty thousand
Speaker 3: net gain in the last year, so so you know,
Speaker 3: maybe the shape of New Zealand's demographics is changing, but
Speaker 3: the population is still growing and that's at least a
Speaker 3: sign that some people have got faith in this country
Speaker 3: long term.
Speaker 2: And Liam, what's your outlook for the coming months. I
Speaker 2: know we ask you this every time, all the time,
Speaker 2: but people want to see some light at the end
Speaker 2: of the tunnel, don't they.
Speaker 3: It's funny that it's all hooked around interest rate. The
Speaker 3: cyclical bit will turn. I can't tell you exactly which
Speaker 3: month it's going to turn in. Is it November, February?
Speaker 3: By May? But the cycle of this economy will turn,
Speaker 3: and you know, interest rates will come down a bit
Speaker 3: enough for people to feel a bit more relaxed, for
Speaker 3: the property market to come back a bit, which you know,
Speaker 3: nobody wants another housing bubble, but you know, the middle
Speaker 3: classes feel a bit wealthier, they start spending again, and
Speaker 3: all of that stuff turns round. So I think that
Speaker 3: is the light at the end of tunnel. Just trust
Speaker 3: that the process is working. It's been slower and a
Speaker 3: tougher grind than we would have liked. Some of the
Speaker 3: damage done through the pandemic was probably worse than hoped,
Speaker 3: so it's taken more time to get things rebalancing, but
Speaker 3: that inflation really is coming out now. Bigger challenges for
Speaker 3: New Zealand are still there, infrastructure and new industries and
Speaker 3: jobs growth and all that stuff getting the mojo back.
Speaker 3: I'm hopeful that as the cycle turns, the government will
Speaker 3: sort of use that momentum to try and get a
Speaker 3: few things going and spark a bit more of an
Speaker 3: upbeat feeling in the country.
Speaker 2: Thanks for joining us, Liam, That said, for this episode
Speaker 2: of The Front Page. You can read more about today's
Speaker 2: stories and extensive news coverage at enzat Herald dot co
Speaker 2: dot z. The Front Page is produced by Ethan Seals
Speaker 2: with sound engineer Patty Fox. I'm Chelsea Daniels. Subscribe to
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Speaker 2: and tune in tomorrow for another look behind the headlines.