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Speaker 1: It's a big day today for mortgage holders. Basically, are

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Speaker 1: enough people out of work to force the ocr down,

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Speaker 1: thereby taking the pressure off our mortgages. Unemployment data for

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Speaker 1: the June quarter is out today. The Reserve Bank is

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Speaker 1: expecting unemployment rate to rise to four point six percent.

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Speaker 1: It's currently at four point three percent for quarter one.

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Speaker 1: A n Z, ASB Kiwibank Westpact, they all predict an

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Speaker 1: increase to four point seven percent, b n Z saying

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Speaker 1: four point six Joining me now as ASB Senior economist

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Speaker 1: Mark Smith, Mark, good morning, Good morning. What's the magic number?

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Speaker 1: Do you think what is the magic number we would

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Speaker 1: need to see today in order for their to be

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Speaker 1: a cut, say next week?

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Speaker 2: Well probably that's the higher the numbers, the more likely

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Speaker 2: you'd like to see a cat. It's not just the

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Speaker 2: unemployment rate, but also things like labor costs and wages

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Speaker 2: that the Reserve Bank are looking at very closely.

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Speaker 1: Will they how how well? To what extent is it

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Speaker 1: the job's data versus that sticky domestic inflation that we've

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Speaker 1: been watching.

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Speaker 2: Yeah, I think what we've seen is we're gone from

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Speaker 2: a period a few years ago where firms have been

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Speaker 2: hoarding labor. It's now a where firms are actually shedding

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Speaker 2: labor because the demind of environment is so weak and

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Speaker 2: they're having to do that. Also, firms profitability now is

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Speaker 2: very dire, you know, the weakest in about thirty years

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Speaker 2: as the share of income. So they're really in position

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Speaker 2: now where they can't really afford to hold on to

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Speaker 2: staff and had to let them guards. Now, when that happens,

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Speaker 2: what we'd like to see is this labors share of

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Speaker 2: income is likely to fall and inflation will fall as well.

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Speaker 2: So all of these things are interlinked. But really when

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Speaker 2: we see more spare capacity growing in the labor market

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Speaker 2: with the undepoman rate going up, that meets that inflation

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Speaker 2: will eventually go down, and that meant that means their

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Speaker 2: official cash rate needs to come down as well.

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Speaker 1: The Aussies are playing hardballed yesterday the Reserve Bank there,

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Speaker 1: you know, no cuts till twenty twenty five, that sort

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Speaker 1: of thing. Do you do you believe them?

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Speaker 2: Well, it's hard to say at the moment. Bear in

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Speaker 2: mind the Australian official their cash rate is four point

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Speaker 2: three five said ours is five and a half, so

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Speaker 2: that they're completely different. Also, the Australian economy is doing

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Speaker 2: better than the New Zealand economy. For example, the Australian

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Speaker 2: housing market is still doing very well. We're here, it's

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Speaker 2: down the dumps. New Zealand is flit think in and

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Speaker 2: out of recession. I would like to see a size

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Speaker 2: or contraction the economic activity in the middle of the

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Speaker 2: share So things in New Zealand are by and we

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Speaker 2: really deceive the OCI come down how.

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Speaker 1: Much because they're obviously the committee that decides. They're all

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Speaker 1: humans and they can see themselves, presumably how much hurt

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Speaker 1: there is out there on main street? How much do

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Speaker 1: they do you reckon? They actually listen to that noise,

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Speaker 1: you know, to that political pressure as well well.

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Speaker 2: They're obviously continent of what's happening around them. You know,

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Speaker 2: it's it's pretty clear how weak things are. But really

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Speaker 2: they've got an inflation targe to meet first, and at

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Speaker 2: the moment, inflation is at three point three percent. Now,

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Speaker 2: if you take out costs, for example, it's already below

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Speaker 2: three percent. So from that point of view, yes, they

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Speaker 2: should be in the ocr but they want to make

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Speaker 2: sure that inflation will settle below three percent before cutting that.

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Speaker 2: You're right, you look around you the unumplement rate is

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Speaker 2: going up. We expect to hit around five and a

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Speaker 2: half percent by the end of the year and it's

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Speaker 2: contrack to move around six percent by five both oft

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Speaker 2: of next year as well. So things that are certainly

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Speaker 2: calling and there are certainly needs for the SCO to

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Speaker 2: come down.

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Speaker 1: Mark. Thank you. That's Mark Smith, the ASP Senior Economist.

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