1 00:00:05,880 --> 00:00:09,240 Speaker 1: Curder and welcome to this short episode of Shared Lunch 2 00:00:09,520 --> 00:00:13,440 Speaker 1: where we look at everyone's favorite subject, interest rates. As 3 00:00:13,480 --> 00:00:15,760 Speaker 1: you may have heard, the Reserve Bank has decided to 4 00:00:15,840 --> 00:00:18,880 Speaker 1: cut the official cash rate, the OCR to five point 5 00:00:18,920 --> 00:00:22,160 Speaker 1: two five percent. Colbrookaho, I'mbrook Roberts, one of the co 6 00:00:22,239 --> 00:00:25,159 Speaker 1: founders and co CEO's at Chares's, and to understand the 7 00:00:25,160 --> 00:00:28,080 Speaker 1: impact of this cut, we're joined by Qubank Chief Economist 8 00:00:28,200 --> 00:00:31,640 Speaker 1: Jared Kerr Cyder, Jared, thanks so much for coming along. I, 9 00:00:32,479 --> 00:00:34,879 Speaker 1: as you probably may know, I used to work at 10 00:00:34,960 --> 00:00:37,839 Speaker 1: Qbubank and I've been thinking of you and maybe the 11 00:00:37,880 --> 00:00:40,080 Speaker 1: Price and Committee, which I used to be a part of, 12 00:00:40,120 --> 00:00:42,279 Speaker 1: where we would get together and talk about what we're 13 00:00:42,280 --> 00:00:44,320 Speaker 1: happening with the OCR and the changes we might make 14 00:00:44,400 --> 00:00:47,040 Speaker 1: for savers and borrowers. 15 00:00:47,120 --> 00:00:48,880 Speaker 2: But also we are. 16 00:00:48,760 --> 00:00:53,280 Speaker 1: Both on the nz EIIR, the New Zealand Economic Research 17 00:00:53,320 --> 00:00:56,560 Speaker 1: Institute sorry shadow board, and we both made the same 18 00:00:56,600 --> 00:00:58,720 Speaker 1: prediction of what we thought would happen with this OCR. 19 00:00:58,800 --> 00:01:00,720 Speaker 2: We both I think, gave it a. 20 00:01:00,280 --> 00:01:03,080 Speaker 1: Sixty percent chance of a cat and funny enough, the 21 00:01:03,120 --> 00:01:05,160 Speaker 1: market did too. They also thought there'd be a sixty 22 00:01:05,160 --> 00:01:08,400 Speaker 1: percent chance of a reduction, and we have seen that 23 00:01:08,440 --> 00:01:12,840 Speaker 1: we've seen the ocr drop by point two five to 24 00:01:12,880 --> 00:01:15,520 Speaker 1: five point two five percent. Could you give us a 25 00:01:15,520 --> 00:01:18,160 Speaker 1: bit of an overview of what's happened in the economic 26 00:01:18,280 --> 00:01:21,360 Speaker 1: environment that's led to this and we're at with inflation today. 27 00:01:21,640 --> 00:01:25,039 Speaker 3: Yeah, thank you for having me on. And it is 28 00:01:25,080 --> 00:01:28,959 Speaker 3: a lot of fun during these periods when you when 29 00:01:28,959 --> 00:01:32,000 Speaker 3: you're involved in pricing committees and the and the likes. 30 00:01:32,040 --> 00:01:36,039 Speaker 3: But you know economically that the country has been in 31 00:01:36,080 --> 00:01:39,480 Speaker 3: a recession since two thousand and twenty two, right, We 32 00:01:39,520 --> 00:01:42,360 Speaker 3: saw that in the Bank's data. We've seen it all 33 00:01:42,760 --> 00:01:44,520 Speaker 3: and all the data out over the last year and 34 00:01:44,560 --> 00:01:47,760 Speaker 3: a half. We will be in a recession for another 35 00:01:47,760 --> 00:01:51,320 Speaker 3: couple of quarters yet, so the inflation outlook. 36 00:01:52,440 --> 00:01:53,440 Speaker 4: Is subdued. 37 00:01:54,000 --> 00:01:57,240 Speaker 3: We expect inflation to be below three percent in the 38 00:01:57,320 --> 00:02:00,200 Speaker 3: quarter that we're in now and back to two percent 39 00:02:00,600 --> 00:02:05,160 Speaker 3: next year. And as of you know, the latest March 40 00:02:05,280 --> 00:02:08,720 Speaker 3: policy statement from the Reserve Bank, they think the same thing. 41 00:02:09,240 --> 00:02:11,119 Speaker 4: Finally, they've seen. 42 00:02:10,919 --> 00:02:14,560 Speaker 3: That coming through in their own forecasts, and that means that, 43 00:02:15,200 --> 00:02:17,880 Speaker 3: you know, a job done from the central banks perspective. 44 00:02:18,000 --> 00:02:20,519 Speaker 4: They've tamed the inflation beast. 45 00:02:20,600 --> 00:02:23,840 Speaker 3: It's dropped from seven point three percent and it'll be 46 00:02:23,960 --> 00:02:27,840 Speaker 3: back to two percent pretty quickly. That's great news for 47 00:02:27,919 --> 00:02:32,120 Speaker 3: the central Bank and it's boosted their confidence and they've 48 00:02:32,160 --> 00:02:33,560 Speaker 3: started cutting interest rates. 49 00:02:33,760 --> 00:02:36,519 Speaker 1: Yeah, and so we saw their first round of cuts. 50 00:02:36,560 --> 00:02:38,919 Speaker 1: Now this is I think the first since March twenty twenty, 51 00:02:39,080 --> 00:02:43,360 Speaker 1: if I recall correctly, it has felt a lot tougher 52 00:02:43,400 --> 00:02:48,000 Speaker 1: here in Alto for households and businesses. Do you see 53 00:02:48,280 --> 00:02:50,200 Speaker 1: that this will make much of a change. Is it's 54 00:02:50,200 --> 00:02:52,160 Speaker 1: just a start, as you mentioned, might see it go 55 00:02:52,240 --> 00:02:56,360 Speaker 1: down further over the next more reductions come ahead. But 56 00:02:57,120 --> 00:02:59,080 Speaker 1: do you think this will start correcting that slowdown? 57 00:02:59,400 --> 00:03:00,960 Speaker 4: Definitely? Absolutely. 58 00:03:02,240 --> 00:03:06,079 Speaker 3: Households and businesses are doing it tough, and they've been 59 00:03:06,080 --> 00:03:09,000 Speaker 3: doing it tough for a long time, and they've been 60 00:03:09,040 --> 00:03:15,240 Speaker 3: waiting patiently for rate cuts to come, and they've come 61 00:03:15,280 --> 00:03:20,480 Speaker 3: a little earlier than most people and even businesses had expected. 62 00:03:20,560 --> 00:03:24,120 Speaker 3: So that's good news. But it's not just about the timing. 63 00:03:24,240 --> 00:03:27,000 Speaker 3: It's about the magnitude. So you know how many rate 64 00:03:27,000 --> 00:03:29,600 Speaker 3: cuts are we going to get? And what we've been 65 00:03:29,639 --> 00:03:33,720 Speaker 3: telling our customers, businesses and households alike is that there's 66 00:03:33,720 --> 00:03:36,360 Speaker 3: going to be quite a few rate cuts coming. We're 67 00:03:36,400 --> 00:03:38,440 Speaker 3: expecting a cash rate to fall from five and a 68 00:03:38,520 --> 00:03:41,800 Speaker 3: half to two and a half. So with that in mind, 69 00:03:42,000 --> 00:03:46,080 Speaker 3: you know, businesses are now thinking well into next year. 70 00:03:46,320 --> 00:03:49,880 Speaker 3: The economy is going to improve, twenty twenty five is 71 00:03:49,880 --> 00:03:51,960 Speaker 3: going to be a much better year than twenty four, 72 00:03:52,400 --> 00:03:56,200 Speaker 3: and let's forget about twenty three. Let's start positioning for 73 00:03:56,280 --> 00:04:00,720 Speaker 3: some growth, and hopefully they'll start thinking to themselves, let's 74 00:04:00,720 --> 00:04:06,040 Speaker 3: start positioning for some investment and expansion. And households will 75 00:04:06,040 --> 00:04:08,960 Speaker 3: similarly be thinking, my budget's going to get a lot better, 76 00:04:09,920 --> 00:04:11,840 Speaker 3: the pressure is going to be a lot better, and 77 00:04:11,880 --> 00:04:15,080 Speaker 3: you know, hopefully I'll be spending a bit more next year. 78 00:04:15,160 --> 00:04:16,960 Speaker 4: So big changes are coming. 79 00:04:18,279 --> 00:04:19,640 Speaker 2: So that is it they're saying. 80 00:04:19,680 --> 00:04:21,840 Speaker 1: Staying alive to twenty twenty five, you know it's going 81 00:04:21,880 --> 00:04:23,720 Speaker 1: to be there might be. There might be some more 82 00:04:23,720 --> 00:04:27,440 Speaker 1: continuous drops we might see this year, which will relieve 83 00:04:27,480 --> 00:04:30,560 Speaker 1: some pressure for those with lending, whether it be businesses 84 00:04:30,680 --> 00:04:34,120 Speaker 1: or or home loans of the lake, but you. 85 00:04:34,080 --> 00:04:36,279 Speaker 2: Will start to see recovery over time. 86 00:04:36,880 --> 00:04:39,640 Speaker 1: What you know, with people with mortgages, what should they 87 00:04:39,640 --> 00:04:40,799 Speaker 1: be thinking about at the moment. 88 00:04:42,520 --> 00:04:44,159 Speaker 4: I think they've been thinking the right thing. 89 00:04:46,240 --> 00:04:49,520 Speaker 3: You know, most most people have gone for a six 90 00:04:49,600 --> 00:04:53,880 Speaker 3: month rate, so they have been well aware that the 91 00:04:53,920 --> 00:04:57,839 Speaker 3: next moves down, not up, and they've been fixing for 92 00:04:57,880 --> 00:05:00,239 Speaker 3: a very short period of time, sort of six month 93 00:05:00,600 --> 00:05:03,000 Speaker 3: and no more than a year. So I think it's 94 00:05:03,240 --> 00:05:09,479 Speaker 3: it's over seventy percent of mortgage mortgage holders have have 95 00:05:09,720 --> 00:05:12,360 Speaker 3: rates fixed for less than a year. 96 00:05:12,960 --> 00:05:15,799 Speaker 4: That's great because it means they don't have to wait. 97 00:05:15,720 --> 00:05:18,920 Speaker 3: Very long to get those rate cuts that are coming 98 00:05:18,960 --> 00:05:23,120 Speaker 3: through now, and that's important. And it's good news from 99 00:05:23,120 --> 00:05:25,719 Speaker 3: the Central banks perspective as well, because normally it takes 100 00:05:25,720 --> 00:05:29,039 Speaker 3: about eighteen months. You know, kiwis tend to sort of 101 00:05:29,080 --> 00:05:31,640 Speaker 3: love a two year rate, but because of all this 102 00:05:31,839 --> 00:05:34,680 Speaker 3: talk about rate cuts, they've gone to six months, which 103 00:05:34,760 --> 00:05:37,400 Speaker 3: means those rate cuts are going to feed through to 104 00:05:37,520 --> 00:05:39,160 Speaker 3: households and businesses faster. 105 00:05:39,720 --> 00:05:40,760 Speaker 4: This is good news. 106 00:05:41,600 --> 00:05:44,200 Speaker 2: Yeah, and then what about for house prices? 107 00:05:44,240 --> 00:05:46,800 Speaker 1: What do you see will happen into house prices here 108 00:05:46,800 --> 00:05:49,200 Speaker 1: and now as rates start to reduce. 109 00:05:50,440 --> 00:05:53,960 Speaker 3: So interest rates are one of the biggest influences on 110 00:05:54,800 --> 00:06:00,200 Speaker 3: house prices. We saw rapid rate cuts during COVID and 111 00:06:00,240 --> 00:06:03,080 Speaker 3: that led to house prices taking off and they rose, 112 00:06:03,200 --> 00:06:06,440 Speaker 3: you know, forty five percent and eighteen months, which was just. 113 00:06:08,279 --> 00:06:09,119 Speaker 4: Unsustainable. 114 00:06:09,360 --> 00:06:12,279 Speaker 3: And then the Central Bank started hiking quite aggressively to 115 00:06:12,360 --> 00:06:15,240 Speaker 3: reverse that, and we've seen house prices full, you know, 116 00:06:15,320 --> 00:06:19,720 Speaker 3: around twenty percent in parts. Now they're cutting rates again, 117 00:06:20,320 --> 00:06:23,919 Speaker 3: so they will cut the cash rates we as we 118 00:06:24,000 --> 00:06:28,640 Speaker 3: mentioned before, and that'll start feeding through into the housing market. 119 00:06:29,040 --> 00:06:31,520 Speaker 3: Looking at the fundamentals of the housing market, there's a 120 00:06:31,520 --> 00:06:35,839 Speaker 3: massive shortage and that shortage is getting worse. We're not 121 00:06:35,880 --> 00:06:39,680 Speaker 3: building enough homes here to keep up with the surge 122 00:06:39,680 --> 00:06:43,040 Speaker 3: and migration that we've had, so that shortage is getting worse. 123 00:06:44,400 --> 00:06:48,479 Speaker 3: Investors have been sidelined, they've been targeted, they've been hunted 124 00:06:49,040 --> 00:06:54,839 Speaker 3: by policymakers with changes to bright line tests and intratroductibility 125 00:06:55,000 --> 00:07:00,560 Speaker 3: and you know other bits and pieces that's reversing. And 126 00:07:00,600 --> 00:07:04,440 Speaker 3: with interest rates being cut, and with rental yields improving, 127 00:07:04,560 --> 00:07:08,440 Speaker 3: so rents arising as house prices are going down, all 128 00:07:08,480 --> 00:07:11,680 Speaker 3: of these things point to investors coming back into the 129 00:07:11,720 --> 00:07:16,000 Speaker 3: market as all this plays out. You know, we're expecting 130 00:07:16,040 --> 00:07:19,760 Speaker 3: house prices to rise by at least five to seven 131 00:07:19,800 --> 00:07:23,000 Speaker 3: percent next year, which you know might not sound like 132 00:07:23,080 --> 00:07:25,920 Speaker 3: a lot, but it's a big improvement from what we've 133 00:07:25,920 --> 00:07:27,640 Speaker 3: seen over the last couple of years. 134 00:07:28,840 --> 00:07:32,680 Speaker 1: So may see house prices increase for savers, you know, 135 00:07:32,720 --> 00:07:35,240 Speaker 1: they're likely going to get less of an interest rate 136 00:07:35,280 --> 00:07:37,840 Speaker 1: on the savings accounts or term deposits that will be 137 00:07:37,840 --> 00:07:40,800 Speaker 1: coming up. What we typically see on chess when there 138 00:07:40,840 --> 00:07:43,720 Speaker 1: are lower interest rates is that people do start to 139 00:07:43,760 --> 00:07:47,360 Speaker 1: move into different risk are assets like investing, where they 140 00:07:47,400 --> 00:07:49,960 Speaker 1: may believe that they'll get a you know, the higher 141 00:07:50,000 --> 00:07:52,600 Speaker 1: return than. 142 00:07:51,680 --> 00:07:52,679 Speaker 2: Lower savings accounts. 143 00:07:52,680 --> 00:07:55,040 Speaker 1: Will be interesting to see that play out over that 144 00:07:55,520 --> 00:07:56,680 Speaker 1: over the next year too. 145 00:07:58,600 --> 00:07:59,840 Speaker 2: Anything you want to add to that. 146 00:08:00,080 --> 00:08:02,160 Speaker 3: Oh, it's just going to say, that's exactly what muniture 147 00:08:02,200 --> 00:08:06,400 Speaker 3: policy is designed to do. So what you're talking about 148 00:08:06,480 --> 00:08:10,160 Speaker 3: is exactly what the Reserve Bank relies on. So you know, 149 00:08:10,240 --> 00:08:14,720 Speaker 3: cutting that cash right lower and lower, you know, reduces 150 00:08:15,120 --> 00:08:18,320 Speaker 3: the returns that you get on your simple savings products 151 00:08:18,840 --> 00:08:21,920 Speaker 3: like a term deposit or having your money in a shares, 152 00:08:21,960 --> 00:08:26,640 Speaker 3: these savings account and it forces people out the risk 153 00:08:26,640 --> 00:08:31,440 Speaker 3: spectrum to look for high yield elsewhere. So that's exactly 154 00:08:31,480 --> 00:08:34,400 Speaker 3: what's supposed to happen, and that'll be exactly what they 155 00:08:34,600 --> 00:08:37,880 Speaker 3: will rely on happening over the next couple of years. 156 00:08:39,480 --> 00:08:42,040 Speaker 1: Now, I know you're a very busy man, a very 157 00:08:42,040 --> 00:08:44,560 Speaker 1: busy economist on a busy day here and now as 158 00:08:44,640 --> 00:08:47,400 Speaker 1: you are, so just leave with one final question, which 159 00:08:47,440 --> 00:08:49,760 Speaker 1: is just could you just give us the key takeaways 160 00:08:49,760 --> 00:08:53,599 Speaker 1: of them monetary policy statement that was made today and 161 00:08:54,280 --> 00:08:55,920 Speaker 1: so that people can go what are the key things 162 00:08:55,920 --> 00:08:58,479 Speaker 1: that people to take away from the statement that was made. 163 00:08:59,000 --> 00:09:02,280 Speaker 3: I think the key thing is that the inflation beast 164 00:09:02,600 --> 00:09:05,920 Speaker 3: that we've been trying to tame in recent years has 165 00:09:06,000 --> 00:09:10,600 Speaker 3: been tamed. Inflation is going back to two percent. We're 166 00:09:10,640 --> 00:09:14,240 Speaker 3: all more confident in that, which means that the central 167 00:09:14,280 --> 00:09:18,319 Speaker 3: banks job is done. So they've lifted interest rates to 168 00:09:18,559 --> 00:09:22,360 Speaker 3: very restrictive levels. They're now going to take that restrictive 169 00:09:22,360 --> 00:09:24,520 Speaker 3: interest rate and they're going to put it back to 170 00:09:24,600 --> 00:09:29,360 Speaker 3: more of a goldilocks rate where it's neither hurting nor 171 00:09:29,480 --> 00:09:33,480 Speaker 3: exciting people. So that's the big move, is that interest 172 00:09:33,559 --> 00:09:36,320 Speaker 3: rates are falling, and they're falling fast. 173 00:09:37,440 --> 00:09:37,680 Speaker 2: Nice. 174 00:09:37,720 --> 00:09:39,560 Speaker 1: Hey, Well, thanks so much for your time today, Jared 175 00:09:39,640 --> 00:09:41,840 Speaker 1: really really appreciate it, and I'll let you get back to 176 00:09:41,920 --> 00:09:45,600 Speaker 1: all the other busy conversations I'm sure you've got lined up. 177 00:09:45,559 --> 00:09:48,520 Speaker 4: Today, pleasure. Thank you for having me. 178 00:09:48,480 --> 00:09:50,040 Speaker 2: On, Thanks heaps for tuning in. 179 00:09:50,640 --> 00:09:53,319 Speaker 1: You can watch a short episode on YouTube or listen 180 00:09:53,360 --> 00:09:54,960 Speaker 1: in wherever you get your podcasts. 181 00:09:55,200 --> 00:09:59,920 Speaker 2: Kakitano investing involves risk. 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