WEBVTT - A flip flop on interest rates—Brad’s view 0:00:06.000 --> 0:00:08.600 Cureda and welcome to this episode of Shared Lunch, where 0:00:08.600 --> 0:00:12.760 we briefly touch upon everyone's favorite subject, interest rates. As 0:00:12.760 --> 0:00:14.760 you may have heard, the Reserve Bank has decided to 0:00:14.800 --> 0:00:17.239 again hold the official cash rate at five and a 0:00:17.280 --> 0:00:20.479 half percent. But why does this matter? Well, this is 0:00:20.480 --> 0:00:22.840 what sets the rates we all pay on our mortgages, 0:00:23.000 --> 0:00:25.959 loans and what we receive when our deposits. My name's 0:00:26.000 --> 0:00:28.560 Laton Robertson, the co founder and co COO at Chazy's. 0:00:28.960 --> 0:00:31.080 And to understand the impact of this, we're joined by 0:00:31.120 --> 0:00:33.519 Inframetrics principal economist Brad Olsen. 0:00:34.040 --> 0:00:37.800 Investing involves risk you might lose the money you start with. 0:00:38.240 --> 0:00:42.040 We recommend talking to a licensed financial advisor. We also 0:00:42.080 --> 0:00:46.880 recommend reading product disclosure documents before deciding to invest. Everything 0:00:46.880 --> 0:00:49.519 you're about to see and hear is current at the 0:00:49.520 --> 0:00:50.400 time of recording. 0:00:50.760 --> 0:00:53.120 Hey Brad, thanks so much for joining us. You're in Geneva, 0:00:53.159 --> 0:00:56.640 but obviously news travels very fast. How you going on? 0:00:56.800 --> 0:00:58.680 Well, thanks, you know, it's pretty hot over here, but 0:00:59.160 --> 0:01:01.240 thank you everyone backing. New Zealand is pretty hot under 0:01:01.280 --> 0:01:03.480 the cholera. As to what's happening with interest rates, so 0:01:03.840 --> 0:01:06.240 a lot of interest a lot of intrigue still going 0:01:06.280 --> 0:01:09.240 on about what the Reserve Bank thinks and importantly what 0:01:09.280 --> 0:01:10.320 they'll do and when. 0:01:11.240 --> 0:01:12.920 Yeah, completely, So you've had a bit of a chance 0:01:12.959 --> 0:01:14.759 to read the statement and what time is it. 0:01:14.680 --> 0:01:17.560 Over there by the way, at about six am? 0:01:18.000 --> 0:01:21.600 Oh, good on you. Hey, Well, look, the consensus from 0:01:21.640 --> 0:01:24.760 what we're reading so far seems well that was that 0:01:24.800 --> 0:01:29.160 there's going to be no change and that's what's happens. 0:01:29.280 --> 0:01:32.680 But specifically there was a lot of talk about with 0:01:32.760 --> 0:01:36.480 regards to inflation in this one and when rates are 0:01:36.480 --> 0:01:38.479 going to be about to be cut. So what's your 0:01:38.520 --> 0:01:40.119 take from what they put out today? 0:01:41.319 --> 0:01:43.840 Yeah, look, actually quite a flip flop really from the 0:01:43.840 --> 0:01:47.040 Reserve Bank in their view. Remember back in May they 0:01:47.040 --> 0:01:50.800 were talking about how they considered increasing the official cash rate. 0:01:51.360 --> 0:01:54.240 Now they're talking and saying that they're confident that inflation 0:01:54.360 --> 0:01:56.480 will be back within the target band of one to 0:01:56.520 --> 0:01:59.320 three percent by the end of this year. They're talking 0:01:59.360 --> 0:02:02.520 about how interest rates have to remain restrictive, but that'll 0:02:02.560 --> 0:02:05.800 be tempered over time depending on how inflation actually goes. 0:02:05.920 --> 0:02:08.280 So really they've gone from sort of talking about a 0:02:08.360 --> 0:02:11.920 hike three weeks six weeks ago to effectively opening the 0:02:11.960 --> 0:02:14.200 door to an interest rate cut. Now it's not going 0:02:14.240 --> 0:02:16.960 to come immediately, but it does start to bend your 0:02:16.960 --> 0:02:19.880 air a little bit towards maybe November this year is 0:02:20.000 --> 0:02:23.320 actually likely for the Reserve Bank. A little bit hard 0:02:23.360 --> 0:02:25.400 to understand how they got there, but I think this 0:02:25.440 --> 0:02:27.280 is probably the right flip flop. Because all of the 0:02:27.400 --> 0:02:30.280 data we have been seeing recently is showing the economy 0:02:30.320 --> 0:02:34.200 slow down, showing less inflationary pressure. It should open that door, 0:02:34.240 --> 0:02:36.000 and I think the Reserve Bank has just put a 0:02:36.000 --> 0:02:37.800 little bit of a crack in that door and opened 0:02:37.880 --> 0:02:38.720 up the opportunity. 0:02:39.480 --> 0:02:41.800 Yeah, it really is a flip. I think the assessment 0:02:41.880 --> 0:02:45.960 last time was more hawkish than expected, this time more dubvish. 0:02:46.440 --> 0:02:50.240 So for listeners, the hawks normally asking for a more 0:02:50.240 --> 0:02:55.480 aggressive stance and wanting its straits to increase normally, and 0:02:55.520 --> 0:02:59.760 then data's being the opposite. So looking for Laurence Trase, 0:02:59.760 --> 0:03:01.400 which it's very much the read of how this one's 0:03:01.440 --> 0:03:03.799 coming out. So you mentioned November, would you say that's 0:03:03.800 --> 0:03:05.000 your pack at the moment as well? 0:03:05.919 --> 0:03:08.600 Well? The question here really is that do we think 0:03:08.600 --> 0:03:10.680 the Reserve Bank is going to stick to its message? 0:03:10.720 --> 0:03:14.120 Because again it's completely one eighty in the last six weeks. 0:03:14.160 --> 0:03:16.160 Who knows what they'll come out with in six weeks 0:03:16.160 --> 0:03:17.920 time again. Gosh, they could be back up to a 0:03:17.960 --> 0:03:20.200 fifty basis point i'd given how they sort of go 0:03:20.320 --> 0:03:22.799 between one or the other. Now, I don't think that's 0:03:22.840 --> 0:03:25.520 actually seriously what's going to happen. But I guess I'm 0:03:25.560 --> 0:03:27.280 a little bit worried that we seem to sort of 0:03:27.320 --> 0:03:30.120 be jumping at every single shadow of every data point 0:03:30.120 --> 0:03:32.560 that comes out. You look at the bank last time, 0:03:32.600 --> 0:03:34.920 they were looking at inflation that had come in at 0:03:34.960 --> 0:03:38.200 a headline level, better, at a non tradable level, worse 0:03:38.240 --> 0:03:40.800 than i'd expected. You look though, at sort of a 0:03:40.800 --> 0:03:43.160 week or so ago, you've got the latest quarterly survey 0:03:43.160 --> 0:03:46.480 of business opinion from NZII looked a lot better in 0:03:46.560 --> 0:03:49.520 terms of inflationary pressures pulling back and similar. I guess 0:03:49.600 --> 0:03:51.840 I'd hate for inflation to come out next week in 0:03:51.880 --> 0:03:54.000 the bank to go well, all of a sudden, it's worse, 0:03:54.040 --> 0:03:56.560 and therefore we're back to our hawkish stant So I 0:03:56.640 --> 0:03:58.880 just don't think they have enough confidence in the Reserve 0:03:58.960 --> 0:04:01.560 Bank's ability to get out of the same bed every 0:04:01.600 --> 0:04:05.240 morning at the moment to say what it is. Here's 0:04:05.400 --> 0:04:09.120 I think the frustration infametrics we were at November twenty 0:04:09.160 --> 0:04:11.280 twenty four being the first cut. If you go back 0:04:11.320 --> 0:04:13.840 a couple of months after the last statement from the 0:04:13.840 --> 0:04:15.760 Reserve Bank where they're like, oh, geez, we need to 0:04:15.800 --> 0:04:18.440 hike it up, we actually pushed it out till February. Now, 0:04:18.480 --> 0:04:20.520 I'd hate for us to also flip flop and go 0:04:20.600 --> 0:04:22.920 straight back to November, but I guess what we're sort 0:04:22.960 --> 0:04:26.039 of seeing is that we were pretty convinced that there's 0:04:26.160 --> 0:04:29.800 enough information that will come through by November to cut. 0:04:30.120 --> 0:04:31.839 We just didn't think the Reserve Bank would have that 0:04:31.960 --> 0:04:34.840 much gumption because of how strong their talk was so 0:04:34.920 --> 0:04:38.039 between November and February. I think is a very live possibility. 0:04:38.120 --> 0:04:40.240 I don't know if i'd put money either way on it, 0:04:40.320 --> 0:04:42.400 because I don't know if the Reserve Bank is particularly 0:04:42.440 --> 0:04:46.120 consistent on their view. But given everything we've seen so far, 0:04:46.240 --> 0:04:49.080 given that weaker data coming through, it does seem to 0:04:49.080 --> 0:04:51.920 be consistent that if you can get inflation below three 0:04:51.960 --> 0:04:54.120 percent by the end of this year, that should open 0:04:54.160 --> 0:04:56.159 the doors for the Reserve Bank to go Yep, we're 0:04:56.200 --> 0:04:58.760 definitely on the right pathway now. Is the right time 0:04:58.760 --> 0:05:00.479 to ease, because it's going to take at a time 0:05:00.520 --> 0:05:03.200 for any of their decisions to actually fully hit the economy. 0:05:04.279 --> 0:05:06.400 Yeah. Interesting, and there's a few changes still to flow 0:05:06.440 --> 0:05:06.800 from here. 0:05:06.839 --> 0:05:07.039 You know. 0:05:07.200 --> 0:05:09.400 One of the things that the statement today will do, 0:05:09.480 --> 0:05:11.560 I'm sure is well, swap breaks will adjust over the 0:05:11.600 --> 0:05:14.160 next few days, and swapbrates are where the mortgages are priced, 0:05:14.160 --> 0:05:16.560 and I do expect we might see a bit of 0:05:16.920 --> 0:05:18.920 home loan rate easy and off the back of this 0:05:19.560 --> 0:05:21.279 that will have an impact. And then of course we'll 0:05:21.279 --> 0:05:24.680 have the new changes from the government with tax relief 0:05:24.680 --> 0:05:26.640 coming in over the next month. So I very much 0:05:26.640 --> 0:05:28.599 agree there's a lot of movements still to happen. But 0:05:28.600 --> 0:05:31.120 if we just bring it back to sentiment in New 0:05:31.200 --> 0:05:33.040 Zealand at the moment, it feels like there's a bit 0:05:33.040 --> 0:05:35.200 of pain now, you know, really in the households and 0:05:35.320 --> 0:05:38.599 businesses alike. And I think that's not so flip floppy. 0:05:38.640 --> 0:05:41.320 I would say that's feeling reasonably embedded. So you know, 0:05:41.360 --> 0:05:42.680 what do you think if we had enough pain? 0:05:44.040 --> 0:05:46.080 I think that you're right. I mean that pain is 0:05:46.160 --> 0:05:48.320 quite clearly hitting now. You see that in all of 0:05:48.320 --> 0:05:51.960 the indicators. What is interesting is andcdotally going around the country, 0:05:51.960 --> 0:05:53.640 I've been hearing from a lot of people that sort 0:05:53.680 --> 0:05:55.800 of said, look, the first three months of twenty four 0:05:56.200 --> 0:05:58.280 were hard, but not sort of you know that they 0:05:58.320 --> 0:06:02.000 were manageably hard. From April on, it feels like things 0:06:02.040 --> 0:06:04.680 have gotten a lot darker, and I think again, you're 0:06:04.680 --> 0:06:06.880 starting to see that through in a number of different indicators, 0:06:06.880 --> 0:06:09.760 which are effectively saying, look, I'm finding it tough as 0:06:09.800 --> 0:06:12.479 a business to just get sales. Households are fighting it 0:06:12.520 --> 0:06:14.400 tough to find the money to go out and spend, 0:06:14.680 --> 0:06:16.719 and so all of that does imply and you see 0:06:16.720 --> 0:06:19.480 that in the business surveys people saying look, it's tougher 0:06:19.600 --> 0:06:22.960 at the moment to get that sort of economic activity. 0:06:23.120 --> 0:06:25.320 I'm not wanting to put up prices quite as much, 0:06:25.680 --> 0:06:27.440 people who are saying, look, I don't think that my 0:06:27.560 --> 0:06:30.520 job security is all that good anymore. Therefore I'm probably 0:06:30.520 --> 0:06:32.680 not asking for the pay rises like I might have 0:06:32.760 --> 0:06:35.159 been before. All of that, I think you're right, is 0:06:35.240 --> 0:06:37.960 consistent with that view that the hits come through, that 0:06:38.080 --> 0:06:41.680 inflation should fall back, that the Reserve Bank's got enough evidence, 0:06:41.839 --> 0:06:43.880 and I think probably the two things we're looking out 0:06:43.880 --> 0:06:46.680 for in the short term, You've got inflation data out 0:06:46.720 --> 0:06:49.080 next week. You've got labor market data out in a 0:06:49.080 --> 0:06:51.640 couple of weeks time after that. If both of those 0:06:51.760 --> 0:06:54.440 continue to show that softening, and we expect they will, 0:06:54.880 --> 0:06:57.080 then I think that really does add that weight of 0:06:57.120 --> 0:07:00.880 evidence behind the Reserve Bank being confident and then did confidently. 0:07:01.560 --> 0:07:05.120 Yeah. Interesting, The labor market has sort of been the savior, 0:07:05.160 --> 0:07:08.240 hasn't it with regards to the economic or the positive 0:07:08.240 --> 0:07:11.760 story out a lot of these lately. But that data 0:07:11.840 --> 0:07:14.480 will be interesting because it feels like that is most 0:07:14.680 --> 0:07:17.960 likely turning. One of the interesting things, just as a 0:07:17.960 --> 0:07:22.559 point is, we've just done the investor survey that Cheesy 0:07:22.680 --> 0:07:26.280 does as well out index and investor sentment has turned. 0:07:26.400 --> 0:07:30.720 Sentiment has turned back to a balanced view, which you know, 0:07:30.840 --> 0:07:32.760 one of the things that may be is people expecting 0:07:32.800 --> 0:07:35.559 to see interest rates start to cut, and as interest 0:07:35.600 --> 0:07:38.880 rates change or go down, and then people do look 0:07:38.920 --> 0:07:40.880 down the asset classes like equity. Sort of interesting to 0:07:40.880 --> 0:07:44.480 see how that plays out. Anyway. What's your key takeaway 0:07:44.480 --> 0:07:47.000 from the from the MPUs to the monetary policy statement? 0:07:47.480 --> 0:07:48.920 Was it an EP sectually? I don't think it was 0:07:48.920 --> 0:07:49.679 today was it? 0:07:49.400 --> 0:07:54.440 But it's just just a monetary policy review. Yes, look, yeah, 0:07:54.640 --> 0:07:57.320 the main message here, I think is that, look, rates 0:07:57.320 --> 0:07:59.360 cats are sort of more live, more on the table 0:07:59.400 --> 0:08:01.560 than before. It's going to be interesting to see how 0:08:01.560 --> 0:08:03.760 the Reserve Bank squares this up in a couple of 0:08:03.760 --> 0:08:07.120 weeks when they release their next actual monetary policy statement 0:08:07.160 --> 0:08:09.800 in their forecast. You remember, you know again, six weeks 0:08:09.800 --> 0:08:13.280 ago they were picking an increase and no real cut 0:08:13.360 --> 0:08:16.240 until August September next year. If they're going to be 0:08:16.320 --> 0:08:18.600 realistic on the talk that we've just had today, they'd 0:08:18.600 --> 0:08:20.600 have to bring their pick forward like ten months. That 0:08:20.680 --> 0:08:24.160 would be pretty substantial and would require some pretty serious explaining. 0:08:24.600 --> 0:08:26.240 But I think you're right that sort of this is 0:08:26.240 --> 0:08:28.400 a bit of a sentiment shift as well, and that 0:08:28.480 --> 0:08:31.480 people are feeling quite challenged at the moment, but also 0:08:31.520 --> 0:08:33.840 a feeling of some of those greenish shoots maybe emerging 0:08:33.920 --> 0:08:36.560 next year. You know, people have been taking out shorter 0:08:36.640 --> 0:08:39.880 and shorter home loans because they're expecting those interest rate cuts. 0:08:40.240 --> 0:08:42.560 You noted that sort of shift and sentiment from the 0:08:42.600 --> 0:08:45.960 Shears's index. You're seeing, you know, consumer confidence not good 0:08:46.000 --> 0:08:49.360 at the moment, but expectations for next year look better. 0:08:49.679 --> 0:08:51.800 It does seem to be that sort of still survived 0:08:51.800 --> 0:08:55.320 till twenty five story, but maybe a slightly earlier pitch 0:08:55.360 --> 0:08:57.920 for their interest rate relief. It's not going to be huge, 0:08:58.160 --> 0:09:00.160 but it will make a difference when it comes, and 0:09:00.200 --> 0:09:02.600 the Reserve Bank seems more open to it now than 0:09:02.640 --> 0:09:04.280 certainly what they were six weeks ago. 0:09:05.360 --> 0:09:07.160 Yeah, nice, great brand. I've heard a bit of that 0:09:07.200 --> 0:09:09.800 survived twenty five, Like I saw someone else right about 0:09:10.360 --> 0:09:12.360 thrive to twenty five the other day, which I thought 0:09:12.400 --> 0:09:15.120 was a great mantra for us to carry forward forward. 0:09:15.120 --> 0:09:17.320 And certainly what I got out of my experience in 0:09:17.320 --> 0:09:19.520 the US a few weeks ago was people taking more 0:09:19.559 --> 0:09:22.960 of that view. But certainly a lot of complexity out 0:09:22.960 --> 0:09:25.720 there in the market still in interest rates, adding to 0:09:25.760 --> 0:09:28.839 that with regards to challenge. So I'm personally of the 0:09:28.920 --> 0:09:30.920 view that i'd like to see them drop sooner rather later, 0:09:30.960 --> 0:09:33.400 but completely understand the pressures and I wouldn't want to 0:09:33.400 --> 0:09:35.280 be sitting in that room making the decision myself. So 0:09:35.320 --> 0:09:37.199 one last question for you, what do you think the 0:09:37.280 --> 0:09:40.160 risks are of them having gone too far and it's 0:09:40.160 --> 0:09:43.480 been harder to pull back into a growth cycle because 0:09:43.480 --> 0:09:44.920 of holding it straights too long. 0:09:46.320 --> 0:09:48.080 I think that sort of the longer we leave it, 0:09:48.400 --> 0:09:50.960 and certainly almost every passing day it feels like they're 0:09:50.960 --> 0:09:53.599 at that risk grows greater and greater. They almost have 0:09:53.720 --> 0:09:56.360 certainly overcooked it a touch. It's just do they bring 0:09:56.400 --> 0:09:58.920 it back by moving by the end of this year 0:09:59.200 --> 0:10:00.920 or do they sort of leave that just that extra 0:10:00.960 --> 0:10:03.480 three months over summer, you know, sort of starts the 0:10:03.559 --> 0:10:05.800 year off with a slower start. I think that might 0:10:05.840 --> 0:10:08.480 well be a mistake. I'm just not sure if they're 0:10:08.520 --> 0:10:10.280 sort of going to stick with that view that they hold, 0:10:10.280 --> 0:10:12.160 if they were going to move sooner, I think they've 0:10:12.200 --> 0:10:14.719 opened the door and so that that might signore a 0:10:14.760 --> 0:10:16.559 bit of a shift. But like I say, we've been 0:10:16.600 --> 0:10:18.880 here before, we've seen these changes come through, and I'm 0:10:18.880 --> 0:10:20.800 never quite sure if I back it. I want to 0:10:20.800 --> 0:10:22.680 see a little bit more data and certainly a few 0:10:22.679 --> 0:10:25.440 more resounding words from the bank to really lock in 0:10:25.480 --> 0:10:26.239 that expectation. 0:10:27.040 --> 0:10:29.040 Yeah, do you think we'll be first to go? Like 0:10:29.200 --> 0:10:32.559 us haven't gone yet, Australia still talk of higher inst rate. Still, 0:10:33.200 --> 0:10:34.600 do you think we'll be the first to start cutting? 0:10:35.480 --> 0:10:36.960 I don't know if we'll be the first. I'd still 0:10:37.000 --> 0:10:38.920 expect probably the THEED will go in the next month 0:10:39.040 --> 0:10:41.600 or two, maybe three months. I do think though, that 0:10:41.640 --> 0:10:44.400 OZ is a real life possibility of having to type further. 0:10:44.440 --> 0:10:48.040 I mean, their inflation has actually been reaccelerating at least 0:10:48.080 --> 0:10:50.480 we don't have that. Sure ours isn't going down as 0:10:50.480 --> 0:10:52.120 fast as we might like, but at least it's not 0:10:52.200 --> 0:10:54.280 going up. So I think, you know, definitely a different 0:10:54.320 --> 0:10:56.319 risk profile depending on where you are in the world. 0:10:56.920 --> 0:10:59.440 Yeah, hey, great, thanks for joining us Brad and Geneva 0:11:00.040 --> 0:11:01.880 the morning with a hot day of your head of 0:11:01.920 --> 0:11:05.160 you really appreciate it. Thank you, and thanks also to 0:11:05.200 --> 0:11:08.360 everyone for tuning in for this short episode of Shared Lunch. 0:11:08.920 --> 0:11:11.000 You can watch Shared Lunch on YouTube or wherever you 0:11:11.040 --> 0:11:11.960 get your podcasts.