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Speaker 1: Bridge our banks, some of our banks, I should say,

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Speaker 1: predicting rate cuts as soon as next month, following inflation

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Speaker 1: dipping to a three year low, reaching three point three

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Speaker 1: percent in the Gyne quarter. That still falls outside the

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Speaker 1: reserve banks target band of one to three percent. As

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Speaker 1: we know, A and Z's already reacted positively to the move.

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Speaker 1: They've count their three year home loan rates to six

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Speaker 1: point three five percent and the two year rate to

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Speaker 1: six point four nine percent. Joining me now is ASB

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Speaker 1: Senior economist Mark Smith, Mark, good morning to you, Thanks

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Speaker 1: for being with me.

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Speaker 2: Good morning.

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Speaker 1: Right, you're predicting two cuts before Christmas? Have I got

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Speaker 1: that right?

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Speaker 2: Yeah, that's correct. The twenty five basis point cut in

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Speaker 2: October and then another twenty five basis point cut in November.

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Speaker 1: Why won't we need to wait for the quarter three

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Speaker 1: data for you to make that prediction.

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Speaker 2: It really comes down to a number of things impacting

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Speaker 2: the inflation process. One, yes, pres event really needs to

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Speaker 2: be sure that inflation is going to be below percent

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Speaker 2: poor cutting, but they also need to see other things

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Speaker 2: to be confident as well that it will stay there

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Speaker 2: once they do cut. Now, to us, it's a number

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Speaker 2: of factors one. Ready, the economy is very soft and

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Speaker 2: pricing pressures are certainly calling. We've seen that in the

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Speaker 2: inflation data. Essentially domestic inflation is calling. External inflation is

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Speaker 2: eventually non existence. So we've had the COVID prehium and

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Speaker 2: that's significantly unwinding in terms of the domestic inflation components.

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Speaker 2: Pressures in the housing market are calling, and it expected

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Speaker 2: to call further. And some of those surfaces components are

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Speaker 2: certainly calling as well, and they're more linked to the

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Speaker 2: labor markets. And it's really the major source of where

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Speaker 2: we see inflation calling from here.

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Speaker 1: What would be worse for the Reserve bank? Would it

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Speaker 1: be prolonged pain like we're seeing now or what happened

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Speaker 1: in Australia where inflation bounce back up.

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Speaker 2: Yeah, probably more of the latter, I think from the

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Speaker 2: reserve banks point of view, it's really it's like the

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Speaker 2: regrets analysis. So really what you want to make sure

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Speaker 2: is when you do start to ease policy, you have

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Speaker 2: to be completely sure that inflation will settle below three percent. Now,

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Speaker 2: the RBA probably took their far off to break a

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Speaker 2: little bit too early after the RBNZ. It's really that

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Speaker 2: regret and then on the other side of the coin,

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Speaker 2: you don't want to drive the economy completely into the

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Speaker 2: ground until you start to ease policy. So it's really

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Speaker 2: a trade off between those two things. Now in tournaments

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Speaker 2: of the rbn's view, we think the view of the

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Speaker 2: risks are certainly shifting. For for what was certainly the

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Speaker 2: risk is we want to make sure inflation is going

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Speaker 2: to settle it below three percent. I think we're very

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Speaker 2: confident of that now and the Reserve Bank increasingly confident

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Speaker 2: that as well. But we're also mindful of the significant

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Speaker 2: damage that you can can cause if you leave the

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Speaker 2: OC high for too long.

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Speaker 1: Yeah, you don't want to screw the poachy quickly before

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Speaker 1: we go how long before we feel richer? If you

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Speaker 1: know what I mean, Because I mean it's one thing

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Speaker 1: to cut rates and it's and it's you know, you're

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Speaker 1: predicted two cuts by Christmas, But when will we actually

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Speaker 1: feel like we're not so hard up?

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Speaker 2: The thing is a lot of the slowdown is policy induced,

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Speaker 2: but there are other factors going on as well. Now

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Speaker 2: it's going to be quite a while before that happens,

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Speaker 2: and that's really the care reason why we think the

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Speaker 2: Reserve that will start to cut the ocr and that's

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Speaker 2: to provide a little bit of interest readily to people

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Speaker 2: out there. We know a lot of households are struggling,

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Speaker 2: but a lot of businesses are struggling as well. A

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Speaker 2: corporate profitability, it's the lowest it's been as a share

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Speaker 2: of incomes in the least thirty years. So they need

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Speaker 2: to really provide some relief, not only to tellsholds, but

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Speaker 2: to businesses as well.

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Speaker 1: Mark, thanks very much for your time. That's Mark Smith,

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Speaker 1: the ASB senior economists. After yesterday's in FAC data, still

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Speaker 1: not in the band of one to three percent where

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Speaker 1: it needs to be three point three percent for the

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Speaker 1: June quarter. But Mark says, without even knowing what quarter

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Speaker 1: three says, they are picking a rate cut. A two

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Speaker 1: rate cuts, I should say by Christmas, one in October

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Speaker 1: and one in November. For more from News Talks B,

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Speaker 1: listen live on air or online and keep our shows

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