Speaker 1: Curder and welcome to this short episode of Shared Lunch
Speaker 1: where we look at everyone's favorite subject, interest rates. As
Speaker 1: you may have heard, the Reserve Bank has decided to
Speaker 1: cut the official cash rate, the OCR to five point
Speaker 1: two five percent. Colbrookaho, I'mbrook Roberts, one of the co
Speaker 1: founders and co CEO's at Chares's, and to understand the
Speaker 1: impact of this cut, we're joined by Qubank Chief Economist
Speaker 1: Jared Kerr Cyder, Jared, thanks so much for coming along. I,
Speaker 1: as you probably may know, I used to work at
Speaker 1: Qbubank and I've been thinking of you and maybe the
Speaker 1: Price and Committee, which I used to be a part of,
Speaker 1: where we would get together and talk about what we're
Speaker 1: happening with the OCR and the changes we might make
Speaker 1: for savers and borrowers.
Speaker 2: But also we are.
Speaker 1: Both on the nz EIIR, the New Zealand Economic Research
Speaker 1: Institute sorry shadow board, and we both made the same
Speaker 1: prediction of what we thought would happen with this OCR.
Speaker 2: We both I think, gave it a.
Speaker 1: Sixty percent chance of a cat and funny enough, the
Speaker 1: market did too. They also thought there'd be a sixty
Speaker 1: percent chance of a reduction, and we have seen that
Speaker 1: we've seen the ocr drop by point two five to
Speaker 1: five point two five percent. Could you give us a
Speaker 1: bit of an overview of what's happened in the economic
Speaker 1: environment that's led to this and we're at with inflation today.
Speaker 3: Yeah, thank you for having me on. And it is
Speaker 3: a lot of fun during these periods when you when
Speaker 3: you're involved in pricing committees and the and the likes.
Speaker 3: But you know economically that the country has been in
Speaker 3: a recession since two thousand and twenty two, right, We
Speaker 3: saw that in the Bank's data. We've seen it all
Speaker 3: and all the data out over the last year and
Speaker 3: a half. We will be in a recession for another
Speaker 3: couple of quarters yet, so the inflation outlook.
Speaker 4: Is subdued.
Speaker 3: We expect inflation to be below three percent in the
Speaker 3: quarter that we're in now and back to two percent
Speaker 3: next year. And as of you know, the latest March
Speaker 3: policy statement from the Reserve Bank, they think the same thing.
Speaker 4: Finally, they've seen.
Speaker 3: That coming through in their own forecasts, and that means that,
Speaker 3: you know, a job done from the central banks perspective.
Speaker 4: They've tamed the inflation beast.
Speaker 3: It's dropped from seven point three percent and it'll be
Speaker 3: back to two percent pretty quickly. That's great news for
Speaker 3: the central Bank and it's boosted their confidence and they've
Speaker 3: started cutting interest rates.
Speaker 1: Yeah, and so we saw their first round of cuts.
Speaker 1: Now this is I think the first since March twenty twenty,
Speaker 1: if I recall correctly, it has felt a lot tougher
Speaker 1: here in Alto for households and businesses. Do you see
Speaker 1: that this will make much of a change. Is it's
Speaker 1: just a start, as you mentioned, might see it go
Speaker 1: down further over the next more reductions come ahead. But
Speaker 1: do you think this will start correcting that slowdown?
Speaker 4: Definitely? Absolutely.
Speaker 3: Households and businesses are doing it tough, and they've been
Speaker 3: doing it tough for a long time, and they've been
Speaker 3: waiting patiently for rate cuts to come, and they've come
Speaker 3: a little earlier than most people and even businesses had expected.
Speaker 3: So that's good news. But it's not just about the timing.
Speaker 3: It's about the magnitude. So you know how many rate
Speaker 3: cuts are we going to get? And what we've been
Speaker 3: telling our customers, businesses and households alike is that there's
Speaker 3: going to be quite a few rate cuts coming. We're
Speaker 3: expecting a cash rate to fall from five and a
Speaker 3: half to two and a half. So with that in mind,
Speaker 3: you know, businesses are now thinking well into next year.
Speaker 3: The economy is going to improve, twenty twenty five is
Speaker 3: going to be a much better year than twenty four,
Speaker 3: and let's forget about twenty three. Let's start positioning for
Speaker 3: some growth, and hopefully they'll start thinking to themselves, let's
Speaker 3: start positioning for some investment and expansion. And households will
Speaker 3: similarly be thinking, my budget's going to get a lot better,
Speaker 3: the pressure is going to be a lot better, and
Speaker 3: you know, hopefully I'll be spending a bit more next year.
Speaker 4: So big changes are coming.
Speaker 2: So that is it they're saying.
Speaker 1: Staying alive to twenty twenty five, you know it's going
Speaker 1: to be there might be. There might be some more
Speaker 1: continuous drops we might see this year, which will relieve
Speaker 1: some pressure for those with lending, whether it be businesses
Speaker 1: or or home loans of the lake, but you.
Speaker 2: Will start to see recovery over time.
Speaker 1: What you know, with people with mortgages, what should they
Speaker 1: be thinking about at the moment.
Speaker 4: I think they've been thinking the right thing.
Speaker 3: You know, most most people have gone for a six
Speaker 3: month rate, so they have been well aware that the
Speaker 3: next moves down, not up, and they've been fixing for
Speaker 3: a very short period of time, sort of six month
Speaker 3: and no more than a year. So I think it's
Speaker 3: it's over seventy percent of mortgage mortgage holders have have
Speaker 3: rates fixed for less than a year.
Speaker 4: That's great because it means they don't have to wait.
Speaker 3: Very long to get those rate cuts that are coming
Speaker 3: through now, and that's important. And it's good news from
Speaker 3: the Central banks perspective as well, because normally it takes
Speaker 3: about eighteen months. You know, kiwis tend to sort of
Speaker 3: love a two year rate, but because of all this
Speaker 3: talk about rate cuts, they've gone to six months, which
Speaker 3: means those rate cuts are going to feed through to
Speaker 3: households and businesses faster.
Speaker 4: This is good news.
Speaker 2: Yeah, and then what about for house prices?
Speaker 1: What do you see will happen into house prices here
Speaker 1: and now as rates start to reduce.
Speaker 3: So interest rates are one of the biggest influences on
Speaker 3: house prices. We saw rapid rate cuts during COVID and
Speaker 3: that led to house prices taking off and they rose,
Speaker 3: you know, forty five percent and eighteen months, which was just.
Speaker 4: Unsustainable.
Speaker 3: And then the Central Bank started hiking quite aggressively to
Speaker 3: reverse that, and we've seen house prices full, you know,
Speaker 3: around twenty percent in parts. Now they're cutting rates again,
Speaker 3: so they will cut the cash rates we as we
Speaker 3: mentioned before, and that'll start feeding through into the housing market.
Speaker 3: Looking at the fundamentals of the housing market, there's a
Speaker 3: massive shortage and that shortage is getting worse. We're not
Speaker 3: building enough homes here to keep up with the surge
Speaker 3: and migration that we've had, so that shortage is getting worse.
Speaker 3: Investors have been sidelined, they've been targeted, they've been hunted
Speaker 3: by policymakers with changes to bright line tests and intratroductibility
Speaker 3: and you know other bits and pieces that's reversing. And
Speaker 3: with interest rates being cut, and with rental yields improving,
Speaker 3: so rents arising as house prices are going down, all
Speaker 3: of these things point to investors coming back into the
Speaker 3: market as all this plays out. You know, we're expecting
Speaker 3: house prices to rise by at least five to seven
Speaker 3: percent next year, which you know might not sound like
Speaker 3: a lot, but it's a big improvement from what we've
Speaker 3: seen over the last couple of years.
Speaker 1: So may see house prices increase for savers, you know,
Speaker 1: they're likely going to get less of an interest rate
Speaker 1: on the savings accounts or term deposits that will be
Speaker 1: coming up. What we typically see on chess when there
Speaker 1: are lower interest rates is that people do start to
Speaker 1: move into different risk are assets like investing, where they
Speaker 1: may believe that they'll get a you know, the higher
Speaker 1: return than.
Speaker 2: Lower savings accounts.
Speaker 1: Will be interesting to see that play out over that
Speaker 1: over the next year too.
Speaker 2: Anything you want to add to that.
Speaker 3: Oh, it's just going to say, that's exactly what muniture
Speaker 3: policy is designed to do. So what you're talking about
Speaker 3: is exactly what the Reserve Bank relies on. So you know,
Speaker 3: cutting that cash right lower and lower, you know, reduces
Speaker 3: the returns that you get on your simple savings products
Speaker 3: like a term deposit or having your money in a shares,
Speaker 3: these savings account and it forces people out the risk
Speaker 3: spectrum to look for high yield elsewhere. So that's exactly
Speaker 3: what's supposed to happen, and that'll be exactly what they
Speaker 3: will rely on happening over the next couple of years.
Speaker 1: Now, I know you're a very busy man, a very
Speaker 1: busy economist on a busy day here and now as
Speaker 1: you are, so just leave with one final question, which
Speaker 1: is just could you just give us the key takeaways
Speaker 1: of them monetary policy statement that was made today and
Speaker 1: so that people can go what are the key things
Speaker 1: that people to take away from the statement that was made.
Speaker 3: I think the key thing is that the inflation beast
Speaker 3: that we've been trying to tame in recent years has
Speaker 3: been tamed. Inflation is going back to two percent. We're
Speaker 3: all more confident in that, which means that the central
Speaker 3: banks job is done. So they've lifted interest rates to
Speaker 3: very restrictive levels. They're now going to take that restrictive
Speaker 3: interest rate and they're going to put it back to
Speaker 3: more of a goldilocks rate where it's neither hurting nor
Speaker 3: exciting people. So that's the big move, is that interest
Speaker 3: rates are falling, and they're falling fast.
Speaker 2: Nice.
Speaker 1: Hey, Well, thanks so much for your time today, Jared
Speaker 1: really really appreciate it, and I'll let you get back to
Speaker 1: all the other busy conversations I'm sure you've got lined up.
Speaker 4: Today, pleasure. Thank you for having me.
Speaker 2: On, Thanks heaps for tuning in.
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