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Speaker 1: Used dogs.

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Speaker 2: That'd be and bad news if you're longing for Morga

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Speaker 2: rates to come down sometime soon. Infometrics has just updated

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Speaker 2: its forecast and now doesn't think the Reserve Bank will

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Speaker 2: drop the official cash rate until February of next year.

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Speaker 2: It had previously predicted that rates would start coming down

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Speaker 2: in November. Brad Olson is infometrics principal economist Kyolder. Kolder,

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Speaker 2: why have you moved out the date?

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Speaker 1: Well, we keep looking out at the economy and probably

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Speaker 1: more importantly, at how the Reserve Bank is viewing the economy,

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Speaker 1: and we just can't support our previous view. We thought

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Speaker 1: it was going to be November that the Reserve Bank

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Speaker 1: would have enough information to start to make those cuts.

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Speaker 1: We've now formally pushed that out to February next year,

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Speaker 1: just given how intense that non tradables inflation have been,

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Speaker 1: that domestically based pressure. But we are, I guess a

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Speaker 1: little bit worried. We're a little bit almost in two

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Speaker 1: minds over this. But we've looked at how strong the

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Speaker 1: Reserve Bank's view has been so far, you know, looking

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Speaker 1: at all of their forecasts and their expectations. We just

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Speaker 1: can't see them moving all that quickly. They're pretty persistent

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Speaker 1: over their view they need to get inflation down lower.

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Speaker 1: They haven't got that evidence yet, And if they haven't

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Speaker 1: got their evidence, we can't really go out and say

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Speaker 1: we think they'll move ahead of time, because they most

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Speaker 1: likely probably won't.

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Speaker 2: What about fiscal policy, how is the budget factoring in

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Speaker 2: your forecasts?

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Speaker 1: Well, and that's the other thing that sort of seems

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Speaker 1: to come through. I mean, if you look at the budget,

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Speaker 1: I think overall, even the Treasury's numbers show that the

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Speaker 1: government spending over time share should be sort of more contractionery.

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Speaker 1: It shouldn't add nearly as much into the economy as

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Speaker 1: it previously might have. So that's a good thing over

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Speaker 1: the long term. The issue is given how much more

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Speaker 1: challenging the economy looks like it will be, you know,

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Speaker 1: with those higher interest rates for longer. Even the Treasury

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Speaker 1: said also that you know that near term fiscal impulse

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Speaker 1: might be slightly more positive. If I'm the Reserve Bank

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Speaker 1: and I'm already worried about inflation remaining too persistent, They're

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Speaker 1: probably going to have a bit of a black mark

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Speaker 1: against that. So looking at all that, we can't see

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Speaker 1: any justification for the Reserve Bank needing to raise interest rates. Again,

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Speaker 1: we still don't discount it because we think that they're

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Speaker 1: so worried at the moment we've got a ten percent

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Speaker 1: chance that they might have to, but so far we're

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Speaker 1: sort of of the view that, look, it just pushes

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Speaker 1: it out. I still don't think it has to take

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Speaker 1: till September or whenever in twenty twenty five that the

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Speaker 1: Reserve Bank is sort of forecasting on their official cash

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Speaker 1: rate track. But it's just that pressure that's in the economy.

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Speaker 1: Economic activity has pulled back, inflation is taking longer to

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Speaker 1: get there. That means that interest rates will also take

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Speaker 1: longer to come down.

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Speaker 2: Ten percent is not nothing, Brad. I'd be much every

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Speaker 2: if it was zero pointeen percent.

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Speaker 1: Oh, I absolutely agree, And trust me, there was a

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Speaker 1: lot of conversation in our team around you know, is

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Speaker 1: is that justified? And we looked at it and we

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Speaker 1: just went, well, we sort of has to because the

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Speaker 1: fact that the Reserve Bank not only has listed their

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Speaker 1: official the cash rate forecast, we could almost get away

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Speaker 1: from that that you know, the Reserve Bank's been saying

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Speaker 1: look it's mechanistic and almost saying look it's all cast

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Speaker 1: but don't believe our forecast, which is hard to interpret

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Speaker 1: in of itself, but the fact they did that and

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Speaker 1: also said in their official record of meeting they said, hey, guys,

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Speaker 1: we actually did think about putting it up. What are

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Speaker 1: we supposed to look at? I mean, the Reserve Bank

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Speaker 1: lifts their track, they talk about how they thought about

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Speaker 1: raising it. That's a pretty strong signal to me that

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Speaker 1: they haven't discounted it. And if they haven't, then we

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Speaker 1: sure can't.

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Speaker 2: It's interesting, you know, Adrian All made it pretty clear

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Speaker 2: I think last month, with that last month's policy statement

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Speaker 2: that when you think about the non tradeables, that the

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Speaker 2: domestic inflation stuff like rates, stuff like insurance rent prices

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Speaker 2: that are contributing, you know, massively to that to that

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Speaker 2: high non tradeables numbers at five point eight or something

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Speaker 2: at the moment. So what are his chances of trying

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Speaker 2: to trying to stop those rises?

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Speaker 1: Well? And I think so, I mean, the Governor's made

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Speaker 1: some interesting remarks on that because he much seem to

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Speaker 1: imply that the Bank thought they could get for those

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Speaker 1: things under control. You're not going to use monetary policy

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Speaker 1: to get local government rates under control. You're probably not

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Speaker 1: going to get them to shift insurance premiums and similar either.

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Speaker 1: What it's more likely to do is that if those

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Speaker 1: things remain high, then the Reserve Bank might well have

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Speaker 1: to keep suppressing harder on the other parts of the

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Speaker 1: economy to get their aggate inflation pred down. I think

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Speaker 1: I mean, to be fair, they've been looking through at

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Speaker 1: those non tradables and saying it's not just these big

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Speaker 1: thorny things. There's enough general pressure in there as well.

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Speaker 1: So what they'll probably want to see is that they

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Speaker 1: if they can't influence some of those big thorny bits,

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Speaker 1: they'll want to see the rest of non pullback. They'll

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Speaker 1: also sort of need to see more generally, probably that

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Speaker 1: hit on consumption. If people aren't spending as much over time,

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Speaker 1: businesses just shouldn't be able to pass through those costs

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Speaker 1: quite as much. They'll be worried about losing market shared

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Speaker 1: and cash flow, so that should filter through. But I

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Speaker 1: think the Reserve Bank has sort of said that, Look,

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Speaker 1: they're nervous about that because it just hasn't come down

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Speaker 1: as quickly. You know, you've had other central banks around

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Speaker 1: the world they have been able to get their core

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Speaker 1: inflation down. We haven't managed to achieve that yet and

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Speaker 1: to be fair until that happens. If on the Reserve Bank,

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Speaker 1: I'm still going I'm not confident enough about having my target,

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Speaker 1: and until that happens, I'm not shifting my position. Yeah.

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Speaker 2: Hey, thanks Brad. Always appreciate your insights. That is Brad Olsen.

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Speaker 2: That is Brad Olsen and for Metrix principal economists. For

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