1 00:00:00,040 --> 00:00:01,920 Speaker 1: So we always love an ocr DA, don't we, But 2 00:00:02,160 --> 00:00:04,080 Speaker 1: they seems to have a little extra hanging on at 3 00:00:04,080 --> 00:00:06,720 Speaker 1: no real consensus over twenty five or fifty. Nick Toughly's 4 00:00:06,720 --> 00:00:10,280 Speaker 1: asb's chief economist and is with us, Nick morning, good morning, 5 00:00:10,360 --> 00:00:12,680 Speaker 1: you're fifty. How solid are you on you're fifty. 6 00:00:13,840 --> 00:00:15,920 Speaker 2: Well, I'd like to go to do a pun and 7 00:00:15,960 --> 00:00:18,320 Speaker 2: say you're about fifty to fifty on the fifty, probably 8 00:00:18,320 --> 00:00:22,000 Speaker 2: about sixty, probably about sixty forty. Look, you can do 9 00:00:22,040 --> 00:00:24,360 Speaker 2: a pretty good case either way, but we think it's 10 00:00:24,640 --> 00:00:27,560 Speaker 2: just time to give it a firm and nudge than 11 00:00:27,640 --> 00:00:29,120 Speaker 2: what the Reserve Bank has recently. 12 00:00:29,320 --> 00:00:30,960 Speaker 1: Do you have many will put any weight on the 13 00:00:30,960 --> 00:00:32,840 Speaker 1: stick of shock argument, and that is that the reserve 14 00:00:32,880 --> 00:00:34,640 Speaker 1: banker are going to panic a little bit and look 15 00:00:34,680 --> 00:00:36,800 Speaker 1: at all the things that have happened since they lasted nothing, 16 00:00:36,840 --> 00:00:38,400 Speaker 1: and go, geez, we better do something. 17 00:00:39,720 --> 00:00:41,680 Speaker 2: I don't think it's so much panic, but it's just 18 00:00:41,880 --> 00:00:43,760 Speaker 2: a shift or what we expect to see is it's 19 00:00:43,760 --> 00:00:47,240 Speaker 2: a recognition that the recovery does have some legs to 20 00:00:47,320 --> 00:00:49,560 Speaker 2: get going, but it's just taking longer to keep going. 21 00:00:49,560 --> 00:00:51,440 Speaker 2: And I think the really key thing from their point 22 00:00:51,479 --> 00:00:53,920 Speaker 2: of viewers is that there's looking like there's a lot 23 00:00:53,960 --> 00:00:56,160 Speaker 2: more spere capacity hanging around, and you just need the 24 00:00:56,200 --> 00:01:00,360 Speaker 2: economy to grow that much faster to absorb there. Otherwise 25 00:01:00,400 --> 00:01:02,800 Speaker 2: you've gotten an issue with inflation being a little bit 26 00:01:02,800 --> 00:01:03,880 Speaker 2: weaker than what you expected. 27 00:01:04,120 --> 00:01:07,320 Speaker 1: How much of today is about the basics and the 28 00:01:07,360 --> 00:01:10,320 Speaker 1: facts versus the psychology of it all and getting us 29 00:01:10,360 --> 00:01:12,600 Speaker 1: out of a funk. 30 00:01:12,720 --> 00:01:14,800 Speaker 2: Usually for the Reserve Bank, it is about the numbers 31 00:01:14,840 --> 00:01:18,319 Speaker 2: looking and going, Okay, the recovery has been slower. It 32 00:01:18,360 --> 00:01:20,840 Speaker 2: will rebound, but it's not going to be coming quick 33 00:01:20,959 --> 00:01:24,240 Speaker 2: enough to absorb the specspare to be quicker and they'll 34 00:01:24,240 --> 00:01:26,720 Speaker 2: be eyeing up Okay, we're inflation likely to be sitting. 35 00:01:27,319 --> 00:01:30,160 Speaker 2: There's a little bit of psychology in the sense that, look, 36 00:01:30,200 --> 00:01:32,280 Speaker 2: the Reserve Bank was expecting to get the cash right 37 00:01:32,400 --> 00:01:34,959 Speaker 2: down to two and a half percent by year end, 38 00:01:35,360 --> 00:01:37,880 Speaker 2: So it's more a case of okay, if we cut 39 00:01:37,880 --> 00:01:40,720 Speaker 2: it a bit quicker, you know, what's the room for 40 00:01:40,800 --> 00:01:43,279 Speaker 2: regret around there, and we just think it's relatively small. 41 00:01:43,760 --> 00:01:46,080 Speaker 2: If you do actually get people excited and going out 42 00:01:46,080 --> 00:01:49,080 Speaker 2: there and spending money and borrowing and getting the economy going, 43 00:01:49,560 --> 00:01:52,440 Speaker 2: you know, that's not really too much of a downside. 44 00:01:52,560 --> 00:01:54,080 Speaker 1: What do you think the chances of a fifteen to 45 00:01:54,120 --> 00:01:54,800 Speaker 1: twenty five. 46 00:01:54,640 --> 00:01:57,680 Speaker 2: Are we do you think that's the reason. I mean, 47 00:01:57,720 --> 00:02:01,040 Speaker 2: it's our base base case. We do think fifty today 48 00:02:01,120 --> 00:02:03,640 Speaker 2: would just help jolp things along a bit. We think 49 00:02:03,680 --> 00:02:05,160 Speaker 2: that there's a need for the cash rate to go 50 00:02:05,280 --> 00:02:06,680 Speaker 2: a little bit lower than two and a half. But 51 00:02:06,680 --> 00:02:09,600 Speaker 2: we're getting there near the endpoint, so we do our 52 00:02:09,639 --> 00:02:12,480 Speaker 2: base cases, we'll get down to two twenty five and 53 00:02:12,760 --> 00:02:14,000 Speaker 2: hopefully by the end of this year. 54 00:02:14,160 --> 00:02:16,600 Speaker 1: Do you expect to split vote on the Monetary Committee? 55 00:02:17,240 --> 00:02:19,400 Speaker 2: Look, I think it's going to be pretty close. I 56 00:02:19,440 --> 00:02:22,160 Speaker 2: think last time I was really speculating. We've probably had 57 00:02:22,160 --> 00:02:26,000 Speaker 2: two external people voting for a fifty one external voting 58 00:02:26,000 --> 00:02:28,679 Speaker 2: for twenty five and the reserve banks star voting for 59 00:02:29,120 --> 00:02:32,200 Speaker 2: twenty five. I think the key thing is it six 60 00:02:32,320 --> 00:02:34,959 Speaker 2: versus six, three versus three, or we've got six people. 61 00:02:35,680 --> 00:02:39,280 Speaker 2: What Christian hawks for the governor decides is going to 62 00:02:39,280 --> 00:02:42,320 Speaker 2: be quite critical because his vote counts twice. If they've 63 00:02:42,360 --> 00:02:45,000 Speaker 2: got a split three versus three decision. 64 00:02:44,800 --> 00:02:48,000 Speaker 1: What does it tell us about our economy generally that 65 00:02:48,040 --> 00:02:50,760 Speaker 1: we're hanging on a cash rate and that means mortgages, 66 00:02:50,760 --> 00:02:53,000 Speaker 1: and mortgages means money, and oh god, if we could 67 00:02:53,000 --> 00:02:55,200 Speaker 1: only leverage our house just a wee bit more, the 68 00:02:55,240 --> 00:02:58,080 Speaker 1: economy might start growing. I mean, if you look at 69 00:02:58,080 --> 00:02:59,960 Speaker 1: that in a big picture, it's not that good, is it. 70 00:03:00,280 --> 00:03:03,280 Speaker 1: I mean, we should be doing other stuff than relying 71 00:03:03,320 --> 00:03:04,639 Speaker 1: on today. 72 00:03:05,840 --> 00:03:07,960 Speaker 2: There are certainly more than today. I think the fact 73 00:03:07,960 --> 00:03:10,200 Speaker 2: that people are hanging out for lower interest rates just 74 00:03:10,240 --> 00:03:12,760 Speaker 2: tells you about how high and how painful they have 75 00:03:12,800 --> 00:03:15,560 Speaker 2: felt for many people. But when you step along beyond 76 00:03:15,639 --> 00:03:17,680 Speaker 2: interest rates, lo, what we are looking for is people 77 00:03:17,680 --> 00:03:19,800 Speaker 2: to have a bit more spare cash to go and 78 00:03:19,880 --> 00:03:21,679 Speaker 2: spend on the things that they normally work that they've 79 00:03:21,720 --> 00:03:25,360 Speaker 2: been scrimping on. Importantly, we want businesses to start investing 80 00:03:25,400 --> 00:03:28,520 Speaker 2: and looking to the future and making those decisions. But also, 81 00:03:28,680 --> 00:03:31,240 Speaker 2: let's not forget we do have an agricultural sector where 82 00:03:31,280 --> 00:03:33,200 Speaker 2: there's a lot of cash piling in and they just 83 00:03:33,240 --> 00:03:34,840 Speaker 2: also need to get to that point where they've got 84 00:03:34,840 --> 00:03:37,080 Speaker 2: their own financial ship into order and then they'll start 85 00:03:37,120 --> 00:03:38,960 Speaker 2: going out and spending on fun. 86 00:03:39,240 --> 00:03:42,760 Speaker 1: While I've got you, the FPC, the Financial Policy Committee, 87 00:03:42,800 --> 00:03:45,120 Speaker 1: which they announced the Reserve Bank announced yesterday. It's a 88 00:03:45,160 --> 00:03:47,000 Speaker 1: thing they're setting up. Is that going to make any 89 00:03:47,040 --> 00:03:48,680 Speaker 1: material difference to my life? 90 00:03:50,400 --> 00:03:53,040 Speaker 2: Look, I think a lot of that financial stability stuff, 91 00:03:53,040 --> 00:03:55,440 Speaker 2: it's a bit like having an insurance policy. You sort 92 00:03:55,440 --> 00:03:58,400 Speaker 2: of don't really read the fine print, just pay the 93 00:03:58,440 --> 00:04:01,520 Speaker 2: premium and kind of ignore it, but you actually don't 94 00:04:01,520 --> 00:04:03,520 Speaker 2: ever want it to be bumping up and having a 95 00:04:03,520 --> 00:04:06,640 Speaker 2: big impact on your life. That usually means something's gone wrong. 96 00:04:06,720 --> 00:04:09,000 Speaker 2: So that hopefully the job that committee is going to 97 00:04:09,040 --> 00:04:11,920 Speaker 2: be just to make sure that in the background the 98 00:04:11,960 --> 00:04:13,920 Speaker 2: New Zealand financial system remained stable. 99 00:04:14,080 --> 00:04:15,440 Speaker 1: All right, Good to talk to you, by the way, 100 00:04:15,480 --> 00:04:17,680 Speaker 1: while I've also got you do you reckon as a bubble? 101 00:04:19,480 --> 00:04:23,360 Speaker 2: Look, I think it's one where there's a lot of excitement. 102 00:04:23,400 --> 00:04:26,160 Speaker 2: But the thing with technology is often there's a lot 103 00:04:26,160 --> 00:04:29,279 Speaker 2: of hype initially that fails to deliver, but over the 104 00:04:29,279 --> 00:04:32,320 Speaker 2: long term you get some pretty profound impacts. So I 105 00:04:32,360 --> 00:04:34,360 Speaker 2: think we'll see a lot of progress coming over time. 106 00:04:34,560 --> 00:04:37,839 Speaker 1: Always enjoy your company, Appreciate it. Nick Tuffley asb Chief Economists. 107 00:04:38,200 --> 00:04:41,080 Speaker 1: For more from the Mic Asking Breakfast, listen live to 108 00:04:41,200 --> 00:04:44,279 Speaker 1: news talks it'd be from six am weekdays, or follow 109 00:04:44,320 --> 00:04:45,840 Speaker 1: the podcast on iHeartRadio.