Speaker 1: Cureda and welcome to this episode of Shared Lunch, where
Speaker 1: we briefly touch upon everyone's favorite subject, interest rates. As
Speaker 1: you may have heard, the Reserve Bank has decided to
Speaker 1: again hold the official cash rate at five and a
Speaker 1: half percent. But why does this matter? Well, this is
Speaker 1: what sets the rates we all pay on our mortgages,
Speaker 1: loans and what we receive when our deposits. My name's
Speaker 1: Laton Robertson, the co founder and co COO at Chazy's.
Speaker 1: And to understand the impact of this, we're joined by
Speaker 1: Inframetrics principal economist Brad Olsen.
Speaker 2: Investing involves risk you might lose the money you start with.
Speaker 2: We recommend talking to a licensed financial advisor. We also
Speaker 2: recommend reading product disclosure documents before deciding to invest. Everything
Speaker 2: you're about to see and hear is current at the
Speaker 2: time of recording.
Speaker 1: Hey Brad, thanks so much for joining us. You're in Geneva,
Speaker 1: but obviously news travels very fast. How you going on?
Speaker 3: Well, thanks, you know, it's pretty hot over here, but
Speaker 3: thank you everyone backing. New Zealand is pretty hot under
Speaker 3: the cholera. As to what's happening with interest rates, so
Speaker 3: a lot of interest a lot of intrigue still going
Speaker 3: on about what the Reserve Bank thinks and importantly what
Speaker 3: they'll do and when.
Speaker 1: Yeah, completely, So you've had a bit of a chance
Speaker 1: to read the statement and what time is it.
Speaker 3: Over there by the way, at about six am?
Speaker 1: Oh, good on you. Hey, Well, look, the consensus from
Speaker 1: what we're reading so far seems well that was that
Speaker 1: there's going to be no change and that's what's happens.
Speaker 1: But specifically there was a lot of talk about with
Speaker 1: regards to inflation in this one and when rates are
Speaker 1: going to be about to be cut. So what's your
Speaker 1: take from what they put out today?
Speaker 3: Yeah, look, actually quite a flip flop really from the
Speaker 3: Reserve Bank in their view. Remember back in May they
Speaker 3: were talking about how they considered increasing the official cash rate.
Speaker 3: Now they're talking and saying that they're confident that inflation
Speaker 3: will be back within the target band of one to
Speaker 3: three percent by the end of this year. They're talking
Speaker 3: about how interest rates have to remain restrictive, but that'll
Speaker 3: be tempered over time depending on how inflation actually goes.
Speaker 3: So really they've gone from sort of talking about a
Speaker 3: hike three weeks six weeks ago to effectively opening the
Speaker 3: door to an interest rate cut. Now it's not going
Speaker 3: to come immediately, but it does start to bend your
Speaker 3: air a little bit towards maybe November this year is
Speaker 3: actually likely for the Reserve Bank. A little bit hard
Speaker 3: to understand how they got there, but I think this
Speaker 3: is probably the right flip flop. Because all of the
Speaker 3: data we have been seeing recently is showing the economy
Speaker 3: slow down, showing less inflationary pressure. It should open that door,
Speaker 3: and I think the Reserve Bank has just put a
Speaker 3: little bit of a crack in that door and opened
Speaker 3: up the opportunity.
Speaker 1: Yeah, it really is a flip. I think the assessment
Speaker 1: last time was more hawkish than expected, this time more dubvish.
Speaker 1: So for listeners, the hawks normally asking for a more
Speaker 1: aggressive stance and wanting its straits to increase normally, and
Speaker 1: then data's being the opposite. So looking for Laurence Trase,
Speaker 1: which it's very much the read of how this one's
Speaker 1: coming out. So you mentioned November, would you say that's
Speaker 1: your pack at the moment as well?
Speaker 3: Well? The question here really is that do we think
Speaker 3: the Reserve Bank is going to stick to its message?
Speaker 3: Because again it's completely one eighty in the last six weeks.
Speaker 3: Who knows what they'll come out with in six weeks
Speaker 3: time again. Gosh, they could be back up to a
Speaker 3: fifty basis point i'd given how they sort of go
Speaker 3: between one or the other. Now, I don't think that's
Speaker 3: actually seriously what's going to happen. But I guess I'm
Speaker 3: a little bit worried that we seem to sort of
Speaker 3: be jumping at every single shadow of every data point
Speaker 3: that comes out. You look at the bank last time,
Speaker 3: they were looking at inflation that had come in at
Speaker 3: a headline level, better, at a non tradable level, worse
Speaker 3: than i'd expected. You look though, at sort of a
Speaker 3: week or so ago, you've got the latest quarterly survey
Speaker 3: of business opinion from NZII looked a lot better in
Speaker 3: terms of inflationary pressures pulling back and similar. I guess
Speaker 3: I'd hate for inflation to come out next week in
Speaker 3: the bank to go well, all of a sudden, it's worse,
Speaker 3: and therefore we're back to our hawkish stant So I
Speaker 3: just don't think they have enough confidence in the Reserve
Speaker 3: Bank's ability to get out of the same bed every
Speaker 3: morning at the moment to say what it is. Here's
Speaker 3: I think the frustration infametrics we were at November twenty
Speaker 3: twenty four being the first cut. If you go back
Speaker 3: a couple of months after the last statement from the
Speaker 3: Reserve Bank where they're like, oh, geez, we need to
Speaker 3: hike it up, we actually pushed it out till February. Now,
Speaker 3: I'd hate for us to also flip flop and go
Speaker 3: straight back to November, but I guess what we're sort
Speaker 3: of seeing is that we were pretty convinced that there's
Speaker 3: enough information that will come through by November to cut.
Speaker 3: We just didn't think the Reserve Bank would have that
Speaker 3: much gumption because of how strong their talk was so
Speaker 3: between November and February. I think is a very live possibility.
Speaker 3: I don't know if i'd put money either way on it,
Speaker 3: because I don't know if the Reserve Bank is particularly
Speaker 3: consistent on their view. But given everything we've seen so far,
Speaker 3: given that weaker data coming through, it does seem to
Speaker 3: be consistent that if you can get inflation below three
Speaker 3: percent by the end of this year, that should open
Speaker 3: the doors for the Reserve Bank to go Yep, we're
Speaker 3: definitely on the right pathway now. Is the right time
Speaker 3: to ease, because it's going to take at a time
Speaker 3: for any of their decisions to actually fully hit the economy.
Speaker 1: Yeah. Interesting, and there's a few changes still to flow
Speaker 1: from here.
Speaker 3: You know.
Speaker 1: One of the things that the statement today will do,
Speaker 1: I'm sure is well, swap breaks will adjust over the
Speaker 1: next few days, and swapbrates are where the mortgages are priced,
Speaker 1: and I do expect we might see a bit of
Speaker 1: home loan rate easy and off the back of this
Speaker 1: that will have an impact. And then of course we'll
Speaker 1: have the new changes from the government with tax relief
Speaker 1: coming in over the next month. So I very much
Speaker 1: agree there's a lot of movements still to happen. But
Speaker 1: if we just bring it back to sentiment in New
Speaker 1: Zealand at the moment, it feels like there's a bit
Speaker 1: of pain now, you know, really in the households and
Speaker 1: businesses alike. And I think that's not so flip floppy.
Speaker 1: I would say that's feeling reasonably embedded. So you know,
Speaker 1: what do you think if we had enough pain?
Speaker 3: I think that you're right. I mean that pain is
Speaker 3: quite clearly hitting now. You see that in all of
Speaker 3: the indicators. What is interesting is andcdotally going around the country,
Speaker 3: I've been hearing from a lot of people that sort
Speaker 3: of said, look, the first three months of twenty four
Speaker 3: were hard, but not sort of you know that they
Speaker 3: were manageably hard. From April on, it feels like things
Speaker 3: have gotten a lot darker, and I think again, you're
Speaker 3: starting to see that through in a number of different indicators,
Speaker 3: which are effectively saying, look, I'm finding it tough as
Speaker 3: a business to just get sales. Households are fighting it
Speaker 3: tough to find the money to go out and spend,
Speaker 3: and so all of that does imply and you see
Speaker 3: that in the business surveys people saying look, it's tougher
Speaker 3: at the moment to get that sort of economic activity.
Speaker 3: I'm not wanting to put up prices quite as much,
Speaker 3: people who are saying, look, I don't think that my
Speaker 3: job security is all that good anymore. Therefore I'm probably
Speaker 3: not asking for the pay rises like I might have
Speaker 3: been before. All of that, I think you're right, is
Speaker 3: consistent with that view that the hits come through, that
Speaker 3: inflation should fall back, that the Reserve Bank's got enough evidence,
Speaker 3: and I think probably the two things we're looking out
Speaker 3: for in the short term, You've got inflation data out
Speaker 3: next week. You've got labor market data out in a
Speaker 3: couple of weeks time after that. If both of those
Speaker 3: continue to show that softening, and we expect they will,
Speaker 3: then I think that really does add that weight of
Speaker 3: evidence behind the Reserve Bank being confident and then did confidently.
Speaker 1: Yeah. Interesting, The labor market has sort of been the savior,
Speaker 1: hasn't it with regards to the economic or the positive
Speaker 1: story out a lot of these lately. But that data
Speaker 1: will be interesting because it feels like that is most
Speaker 1: likely turning. One of the interesting things, just as a
Speaker 1: point is, we've just done the investor survey that Cheesy
Speaker 1: does as well out index and investor sentment has turned.
Speaker 1: Sentiment has turned back to a balanced view, which you know,
Speaker 1: one of the things that may be is people expecting
Speaker 1: to see interest rates start to cut, and as interest
Speaker 1: rates change or go down, and then people do look
Speaker 1: down the asset classes like equity. Sort of interesting to
Speaker 1: see how that plays out. Anyway. What's your key takeaway
Speaker 1: from the from the MPUs to the monetary policy statement?
Speaker 1: Was it an EP sectually? I don't think it was
Speaker 1: today was it?
Speaker 3: But it's just just a monetary policy review. Yes, look, yeah,
Speaker 3: the main message here, I think is that, look, rates
Speaker 3: cats are sort of more live, more on the table
Speaker 3: than before. It's going to be interesting to see how
Speaker 3: the Reserve Bank squares this up in a couple of
Speaker 3: weeks when they release their next actual monetary policy statement
Speaker 3: in their forecast. You remember, you know again, six weeks
Speaker 3: ago they were picking an increase and no real cut
Speaker 3: until August September next year. If they're going to be
Speaker 3: realistic on the talk that we've just had today, they'd
Speaker 3: have to bring their pick forward like ten months. That
Speaker 3: would be pretty substantial and would require some pretty serious explaining.
Speaker 3: But I think you're right that sort of this is
Speaker 3: a bit of a sentiment shift as well, and that
Speaker 3: people are feeling quite challenged at the moment, but also
Speaker 3: a feeling of some of those greenish shoots maybe emerging
Speaker 3: next year. You know, people have been taking out shorter
Speaker 3: and shorter home loans because they're expecting those interest rate cuts.
Speaker 3: You noted that sort of shift and sentiment from the
Speaker 3: Shears's index. You're seeing, you know, consumer confidence not good
Speaker 3: at the moment, but expectations for next year look better.
Speaker 3: It does seem to be that sort of still survived
Speaker 3: till twenty five story, but maybe a slightly earlier pitch
Speaker 3: for their interest rate relief. It's not going to be huge,
Speaker 3: but it will make a difference when it comes, and
Speaker 3: the Reserve Bank seems more open to it now than
Speaker 3: certainly what they were six weeks ago.
Speaker 1: Yeah, nice, great brand. I've heard a bit of that
Speaker 1: survived twenty five, Like I saw someone else right about
Speaker 1: thrive to twenty five the other day, which I thought
Speaker 1: was a great mantra for us to carry forward forward.
Speaker 1: And certainly what I got out of my experience in
Speaker 1: the US a few weeks ago was people taking more
Speaker 1: of that view. But certainly a lot of complexity out
Speaker 1: there in the market still in interest rates, adding to
Speaker 1: that with regards to challenge. So I'm personally of the
Speaker 1: view that i'd like to see them drop sooner rather later,
Speaker 1: but completely understand the pressures and I wouldn't want to
Speaker 1: be sitting in that room making the decision myself. So
Speaker 1: one last question for you, what do you think the
Speaker 1: risks are of them having gone too far and it's
Speaker 1: been harder to pull back into a growth cycle because
Speaker 1: of holding it straights too long.
Speaker 3: I think that sort of the longer we leave it,
Speaker 3: and certainly almost every passing day it feels like they're
Speaker 3: at that risk grows greater and greater. They almost have
Speaker 3: certainly overcooked it a touch. It's just do they bring
Speaker 3: it back by moving by the end of this year
Speaker 3: or do they sort of leave that just that extra
Speaker 3: three months over summer, you know, sort of starts the
Speaker 3: year off with a slower start. I think that might
Speaker 3: well be a mistake. I'm just not sure if they're
Speaker 3: sort of going to stick with that view that they hold,
Speaker 3: if they were going to move sooner, I think they've
Speaker 3: opened the door and so that that might signore a
Speaker 3: bit of a shift. But like I say, we've been
Speaker 3: here before, we've seen these changes come through, and I'm
Speaker 3: never quite sure if I back it. I want to
Speaker 3: see a little bit more data and certainly a few
Speaker 3: more resounding words from the bank to really lock in
Speaker 3: that expectation.
Speaker 1: Yeah, do you think we'll be first to go? Like
Speaker 1: us haven't gone yet, Australia still talk of higher inst rate. Still,
Speaker 1: do you think we'll be the first to start cutting?
Speaker 3: I don't know if we'll be the first. I'd still
Speaker 3: expect probably the THEED will go in the next month
Speaker 3: or two, maybe three months. I do think though, that
Speaker 3: OZ is a real life possibility of having to type further.
Speaker 3: I mean, their inflation has actually been reaccelerating at least
Speaker 3: we don't have that. Sure ours isn't going down as
Speaker 3: fast as we might like, but at least it's not
Speaker 3: going up. So I think, you know, definitely a different
Speaker 3: risk profile depending on where you are in the world.
Speaker 1: Yeah, hey, great, thanks for joining us Brad and Geneva
Speaker 1: the morning with a hot day of your head of
Speaker 1: you really appreciate it. Thank you, and thanks also to
Speaker 1: everyone for tuning in for this short episode of Shared Lunch.
Speaker 1: You can watch Shared Lunch on YouTube or wherever you
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