1 00:00:00,040 --> 00:00:01,640 Speaker 1: So to the wonderful world of the Central Bank and 2 00:00:01,680 --> 00:00:03,520 Speaker 1: their view of where we're at and what we need 3 00:00:03,560 --> 00:00:05,960 Speaker 1: to do economically, twenty five point, can't cash rate it 4 00:00:06,080 --> 00:00:08,520 Speaker 1: for while it's down to eventually it's going to be 5 00:00:08,520 --> 00:00:10,680 Speaker 1: two and a half. They think four two vote hasn't 6 00:00:10,680 --> 00:00:13,560 Speaker 1: happened before. A couple more cuts before Christmas. So Christian 7 00:00:13,600 --> 00:00:16,480 Speaker 1: hawksby acting Reserve Bank Governor's back with us. Good morning oday. 8 00:00:16,840 --> 00:00:19,600 Speaker 1: What do you say to people like Jared Kerr and 9 00:00:19,720 --> 00:00:23,320 Speaker 1: Greg Smith at Devon who have yelled for months now 10 00:00:23,560 --> 00:00:26,479 Speaker 1: fifty points, fifty points and fifty points last time you 11 00:00:26,560 --> 00:00:29,400 Speaker 1: held in this time it's only twenty five They're right, 12 00:00:29,480 --> 00:00:30,840 Speaker 1: you're not. What do you say? 13 00:00:32,720 --> 00:00:35,519 Speaker 2: I say that we're focused on our mandate, which is 14 00:00:36,000 --> 00:00:39,640 Speaker 2: achieving our inflation target and focused on those medium term 15 00:00:40,120 --> 00:00:43,800 Speaker 2: inflation pressures. And it's really been the economy stalling over 16 00:00:43,880 --> 00:00:49,280 Speaker 2: this Q two that's revised down that outlook, and that's 17 00:00:49,280 --> 00:00:51,200 Speaker 2: what we're responding to today. 18 00:00:51,400 --> 00:00:54,160 Speaker 1: And then that is part of the problem the Q two. 19 00:00:54,360 --> 00:00:56,920 Speaker 1: A lot of people saw it, saw it coming, and 20 00:00:56,960 --> 00:00:59,440 Speaker 1: we're yelling and you didn't. How come you didn't see it? 21 00:01:01,360 --> 00:01:04,959 Speaker 2: Well, we saw some of it come through in the 22 00:01:05,000 --> 00:01:07,840 Speaker 2: early phase, and in July. We had a meeting in 23 00:01:07,959 --> 00:01:11,000 Speaker 2: July and we indicated that there was some signs there 24 00:01:11,040 --> 00:01:14,560 Speaker 2: and that we were open to cutting going forward. So 25 00:01:14,600 --> 00:01:17,560 Speaker 2: we gave that signal and that bias in July. As 26 00:01:17,600 --> 00:01:20,759 Speaker 2: it's gone through since then, there's been even more signs 27 00:01:20,880 --> 00:01:23,880 Speaker 2: until we've got more confidence that we can lower rates, 28 00:01:23,880 --> 00:01:25,240 Speaker 2: and we can lower them very quickly. 29 00:01:25,840 --> 00:01:28,720 Speaker 1: Yeah, but you should have done that already. 30 00:01:29,319 --> 00:01:31,959 Speaker 2: We just look forward from where we are is all 31 00:01:31,959 --> 00:01:34,119 Speaker 2: we can do. We play the ball in front of us. 32 00:01:34,360 --> 00:01:37,200 Speaker 1: But what I'm trying to ascertain here is how is 33 00:01:37,240 --> 00:01:39,280 Speaker 1: it that so many people could see what was coming 34 00:01:39,319 --> 00:01:42,240 Speaker 1: in Q two? The will felt weird, it felt bad, 35 00:01:42,720 --> 00:01:46,160 Speaker 1: the local economy was crap, and we all feel it 36 00:01:46,280 --> 00:01:49,520 Speaker 1: livet see it. How come you can't see the same thing. 37 00:01:51,480 --> 00:01:55,320 Speaker 2: Because you know there are risks on either side of 38 00:01:55,360 --> 00:02:00,720 Speaker 2: the outlook that risk to growth has come through. There 39 00:02:00,760 --> 00:02:04,960 Speaker 2: are risks on the other side around inflation. Headline inflation 40 00:02:05,160 --> 00:02:08,639 Speaker 2: getting up around three percent. We've got it at three 41 00:02:08,680 --> 00:02:12,040 Speaker 2: percent for Q three, fifty to fifty percent chance it 42 00:02:12,040 --> 00:02:15,120 Speaker 2: could go over three. There's a risk that that could 43 00:02:15,160 --> 00:02:19,160 Speaker 2: push up inflation expectations and make our job harder. So 44 00:02:19,880 --> 00:02:24,080 Speaker 2: for our committee, we revise down our ocr prediction, but 45 00:02:24,120 --> 00:02:28,000 Speaker 2: we do actually see balanced risks around that lower path 46 00:02:28,000 --> 00:02:29,240 Speaker 2: that we'll put out. 47 00:02:29,120 --> 00:02:33,320 Speaker 1: That inflation how much of it's driven by power, insurance 48 00:02:33,480 --> 00:02:35,760 Speaker 1: and rates and how much of that do you look through? 49 00:02:37,600 --> 00:02:41,320 Speaker 2: A good chunk of it is And so core inflation 50 00:02:41,480 --> 00:02:45,720 Speaker 2: measures are falling, which is a good sign for US 51 00:02:45,840 --> 00:02:50,679 Speaker 2: keeping inflation. An coed it that two percent target out 52 00:02:50,680 --> 00:02:53,640 Speaker 2: in the medium term, So we think we can look 53 00:02:53,760 --> 00:02:57,680 Speaker 2: through a lot of that rise, that near term rise 54 00:02:57,720 --> 00:03:00,440 Speaker 2: that we're seeing, but there is a risk that it 55 00:03:00,480 --> 00:03:05,160 Speaker 2: does get embedded. And we've seeing household inflation expectations tick 56 00:03:05,240 --> 00:03:06,840 Speaker 2: up and we're watching those very closely. 57 00:03:07,400 --> 00:03:09,240 Speaker 1: But why have they ticked up, Christian? They've ticked up 58 00:03:09,240 --> 00:03:11,280 Speaker 1: because I've got my rates bill and my power bill 59 00:03:11,400 --> 00:03:13,760 Speaker 1: and my insurance bill, and I just can't work out 60 00:03:14,400 --> 00:03:16,520 Speaker 1: what you can't see for next year. Why would a 61 00:03:16,560 --> 00:03:18,920 Speaker 1: council who's charging me twelve percent more this year not 62 00:03:18,960 --> 00:03:20,919 Speaker 1: charging me another twelve next year because they can it's 63 00:03:20,960 --> 00:03:21,840 Speaker 1: cost plus accounting. 64 00:03:24,280 --> 00:03:28,280 Speaker 2: Councils will make their own decisions. We just have to 65 00:03:28,440 --> 00:03:32,079 Speaker 2: focus on what, in totality all that means for inflation 66 00:03:32,200 --> 00:03:35,280 Speaker 2: pressure in that medium in that medium term. 67 00:03:35,440 --> 00:03:39,000 Speaker 1: Yeah, but if I look at a council's behavior and 68 00:03:39,000 --> 00:03:41,240 Speaker 1: I look at a power company's behavior and an insurance 69 00:03:41,240 --> 00:03:44,440 Speaker 1: company's behavior, I'm seeing what you see. They're not putting 70 00:03:44,440 --> 00:03:47,360 Speaker 1: their prices down. They're driving inflation, and I don't see 71 00:03:47,360 --> 00:03:49,920 Speaker 1: that changing. Therefore, that's not changing. Why do you think 72 00:03:49,920 --> 00:03:50,240 Speaker 1: it is. 73 00:03:52,800 --> 00:03:55,720 Speaker 2: There's just one part of the equation. We do have 74 00:03:56,360 --> 00:03:59,280 Speaker 2: a lot of spare capacity in the economy, and so 75 00:03:59,400 --> 00:04:03,600 Speaker 2: that's what that's the driver that we see core inflation 76 00:04:04,280 --> 00:04:07,360 Speaker 2: settling more at two percent in that medium term, because 77 00:04:07,400 --> 00:04:11,360 Speaker 2: it's just we're not in an environment where all firms 78 00:04:11,800 --> 00:04:15,440 Speaker 2: can pass on higher costs, and we're not an environment 79 00:04:15,520 --> 00:04:18,919 Speaker 2: where households can bid up wages because we have a 80 00:04:19,000 --> 00:04:20,839 Speaker 2: very soft labor market at the moment. 81 00:04:20,960 --> 00:04:24,000 Speaker 1: But isn't that the crux of your problem. The crux 82 00:04:24,040 --> 00:04:27,039 Speaker 1: of your problem is what's driving inflation is not productivity. 83 00:04:27,279 --> 00:04:30,480 Speaker 1: It's just people sending out bills, and so you've got 84 00:04:30,560 --> 00:04:33,159 Speaker 1: your inflation, but you haven't got it with growth. It's 85 00:04:33,240 --> 00:04:35,840 Speaker 1: not the growth that's driving the inflation. Hence the traditional 86 00:04:35,880 --> 00:04:36,719 Speaker 1: worry you might have. 87 00:04:38,560 --> 00:04:43,360 Speaker 2: So we're focused on cyclical economy. So it's really about 88 00:04:43,880 --> 00:04:47,920 Speaker 2: how much slacked there is relative to that potential growth rate, 89 00:04:48,000 --> 00:04:50,200 Speaker 2: and so that's what drives us. We've got that medium 90 00:04:50,240 --> 00:04:55,080 Speaker 2: term perspective. Productivity and potential growth is really a long 91 00:04:55,160 --> 00:04:59,240 Speaker 2: term story. It's about new skills, new technology, and new 92 00:04:59,279 --> 00:05:02,840 Speaker 2: ways of work, a new products, new markets. You know, 93 00:05:02,880 --> 00:05:07,280 Speaker 2: that's that's out of our control, and even policies to 94 00:05:07,360 --> 00:05:10,600 Speaker 2: promote those things are going to take time to flow through, 95 00:05:10,640 --> 00:05:11,839 Speaker 2: and we won't see it immediately. 96 00:05:12,200 --> 00:05:14,240 Speaker 1: The fifty percent, I think Karen was talking about it, 97 00:05:14,279 --> 00:05:16,680 Speaker 1: the fifty percent that's yet to flow through, as she 98 00:05:16,839 --> 00:05:19,560 Speaker 1: termed it, How wedded to that idea, are you? 99 00:05:21,680 --> 00:05:26,080 Speaker 2: Oh? That that's very mechanical, even that that's based on 100 00:05:26,520 --> 00:05:30,840 Speaker 2: what we've done today. It's just the fact that we 101 00:05:30,920 --> 00:05:34,520 Speaker 2: know that people are who have fixed at those higher 102 00:05:34,640 --> 00:05:38,960 Speaker 2: rates just have to wait and bide their time and 103 00:05:39,000 --> 00:05:41,080 Speaker 2: to lad the opportunity. 104 00:05:41,320 --> 00:05:43,800 Speaker 1: I didn't work. I didn't work it properical. Yeah, I know, 105 00:05:43,839 --> 00:05:45,479 Speaker 1: I get it. It's a mechanical question. I get it. 106 00:05:45,520 --> 00:05:47,080 Speaker 1: But when I get my money, when I get the 107 00:05:47,120 --> 00:05:49,280 Speaker 1: relief from the fixed interest rate and it comes down 108 00:05:49,360 --> 00:05:51,640 Speaker 1: and the insurance bill comes through, I'm no better off. Therefore, 109 00:05:51,680 --> 00:05:53,480 Speaker 1: I'm still in a funk. Therefore, the economy is still 110 00:05:53,520 --> 00:05:53,960 Speaker 1: not moving. 111 00:05:55,560 --> 00:05:59,919 Speaker 2: And that's why since May we are providing more stimulus 112 00:06:00,520 --> 00:06:05,800 Speaker 2: because things have changed. Things have been cooler, households are 113 00:06:05,800 --> 00:06:10,679 Speaker 2: feeling like they've got less discretionary income, all of those things, 114 00:06:11,040 --> 00:06:14,039 Speaker 2: and that's what prompted the action yesterday, and that's what 115 00:06:14,080 --> 00:06:16,200 Speaker 2: prompted the conversation about with it to go fifty. 116 00:06:16,400 --> 00:06:18,480 Speaker 1: Yeah, but they don't feel like they've got it. They 117 00:06:18,520 --> 00:06:20,520 Speaker 1: don't have it. It's a statement of fact. They don't 118 00:06:20,520 --> 00:06:22,719 Speaker 1: have it because of all of the inflation driven things 119 00:06:22,760 --> 00:06:25,560 Speaker 1: I mentioned a moment ago. The difficulty you face, as 120 00:06:25,560 --> 00:06:27,960 Speaker 1: far as I can work out, is you haven't done enough. 121 00:06:28,680 --> 00:06:31,800 Speaker 1: And now, if panic's too strong a word, you've certainly 122 00:06:31,800 --> 00:06:33,520 Speaker 1: woken up to the fact you've got to do more. 123 00:06:33,800 --> 00:06:36,560 Speaker 1: You've got at least two before Christmas, and I just 124 00:06:36,960 --> 00:06:39,960 Speaker 1: don't know for a fact that people are going to 125 00:06:39,960 --> 00:06:42,240 Speaker 1: respond to you because we're in such a funk. It's 126 00:06:42,279 --> 00:06:44,200 Speaker 1: the psychology of a recession, isn't it. 127 00:06:46,560 --> 00:06:51,919 Speaker 2: We see risks on both sides. We're already seeing in 128 00:06:52,000 --> 00:06:55,560 Speaker 2: the July datus that some pick up and economic activity, 129 00:06:55,640 --> 00:06:59,960 Speaker 2: some of those anecdotes are coming through. We've got confidence 130 00:07:00,120 --> 00:07:04,680 Speaker 2: that there are drivers of this economy. We've got high 131 00:07:04,800 --> 00:07:09,120 Speaker 2: export commodity prices. We've got outside of Wellington and Auckland 132 00:07:09,800 --> 00:07:11,840 Speaker 2: the vibers different people feel. 133 00:07:13,120 --> 00:07:15,000 Speaker 1: It's been that way all year. The farmers are booming 134 00:07:15,000 --> 00:07:17,840 Speaker 1: and it's brilliant they're booming. But you can't say outside 135 00:07:17,880 --> 00:07:22,240 Speaker 1: of Auckland. Auckland is the engine room of the economy. 136 00:07:23,440 --> 00:07:25,560 Speaker 2: It's a large part of the economy, but it's not 137 00:07:25,720 --> 00:07:28,320 Speaker 2: all of the economy. If we could, If we could, 138 00:07:28,360 --> 00:07:32,040 Speaker 2: we would set interest rates differently for Auckland and Wellington, 139 00:07:32,080 --> 00:07:33,840 Speaker 2: but we have to set interest rates for the for 140 00:07:33,920 --> 00:07:38,480 Speaker 2: the country that there are other drivers here. We are 141 00:07:38,600 --> 00:07:42,640 Speaker 2: confident that lower interest rates will will kick in and 142 00:07:42,680 --> 00:07:45,720 Speaker 2: we will see that recovery through the second half of 143 00:07:45,760 --> 00:07:46,120 Speaker 2: this year. 144 00:07:46,240 --> 00:07:48,520 Speaker 1: Well, let's hope you're right. Appreciate it very much, Christian Hawksby, 145 00:07:48,520 --> 00:07:50,720 Speaker 1: who's the acting Reserve Bank Governor. 146 00:07:51,240 --> 00:07:54,120 Speaker 2: For more from the Mic Asking Breakfast, listen live to 147 00:07:54,280 --> 00:07:57,320 Speaker 2: news talks there'd be from six am weekdays, or follow 148 00:07:57,360 --> 00:07:58,880 Speaker 2: the podcast on iHeartRadio.