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Speaker 1: Now A and Z has got some good news for us,

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Speaker 1: but also a little bit of bad news. The good

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Speaker 1: news is the bank is now predicting the Reserve Bank

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Speaker 1: will cut the OCR in February, which is three months

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Speaker 1: earlier than they were previously saying. The bad news, though,

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Speaker 1: is that the rate cart's only going to be possible

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Speaker 1: because the economy is weak and unemployment they're predicting will

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Speaker 1: be higher than five percent by December. Sharon Zohlner is

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Speaker 1: A and Z's chief economist and with US evening.

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Speaker 2: Sharon, good evening.

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Speaker 1: Okay, why only three months? Why not bring it forward

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Speaker 1: to November.

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Speaker 2: It could happen. But essentially the Reserve Bank, you know,

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Speaker 2: their mandate is just to get inflation under control, to

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Speaker 2: get it to two percent, but not only that, but

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Speaker 2: also be pretty confident that it's going to stay in

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Speaker 2: that sort of one to three percent range. So given

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Speaker 2: they've struggled to get runs on the board so far,

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Speaker 2: we think they'll be pretty cautious and if anything, probably

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Speaker 2: err on the side of caution. They always have the

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Speaker 2: option of cutting faster, but if they cut too soon,

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Speaker 2: the market will run away with that, and then hauling

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Speaker 2: it back would be actually pretty challenging.

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Speaker 1: Do you think they're aiming for two rather than just

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Speaker 1: anything sub three.

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Speaker 2: Well, if you aim for two point eight or something,

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Speaker 2: then it's really not going to take much to bounce

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Speaker 2: out of the band again. So certainly they're on the

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Speaker 2: record of saying yes, they are aiming at two so

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Speaker 2: as to maximize the chance of staying in that band.

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Speaker 1: And so when do you reckon it hits two.

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Speaker 2: We've got it heading two sometime next year. But it's

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Speaker 2: really the mix of inflation that matters, because there are

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Speaker 2: some parts of inflation that in the made offshore and

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Speaker 2: the oil price is a bigoie that obviously the Reserve

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Speaker 2: Bank of New Zealand can do nothing to influence, so

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Speaker 2: they really do focus on the homegrown inflation and that's

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Speaker 2: the bit that's been unfortunately, very very slow to fall.

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Speaker 2: So whether we're thinking more in terms of getting that

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Speaker 2: down and by February next year that probably won't quite

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Speaker 2: see where it needs to be, but we think it'll

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Speaker 2: be well on the way and the Reserve Bank will

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Speaker 2: be pretty confidence forecasting that it'll get there pretty soon.

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Speaker 1: Do you reckon that the Reserve Bank governor is getting

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Speaker 1: any traction out of his jewel boning.

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Speaker 2: To get intraction out of his ocrhikes. Whether you get

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Speaker 2: traction out of just threatening people to not raise their prices,

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Speaker 2: I'm not sure. We've seen them on a few occasions

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Speaker 2: sort of talk directly to firms about their pricing decisions

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Speaker 2: and directly to consumers about their inflation expectations, telling people

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Speaker 2: to trust trust our forecasts, not what you see out

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Speaker 2: the window. At the moment, I don't know if it works,

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Speaker 2: but hey, it's a pretty low cost way of achieving

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Speaker 2: things as opposed to actually causing the economic pains. It's

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Speaker 2: probably worth a crack.

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Speaker 1: How weak is the economy do you think?

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Speaker 2: Well, we can see that GDP is practically zero in

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Speaker 2: terms of growth, and of course we've got population growth,

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Speaker 2: so GDP per person is looking really quite Sobby. The

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Speaker 2: issue is that the Reserve Bank also has to estimate

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Speaker 2: how fit the economy is, so how fast can it

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Speaker 2: run without generating inflation? And unfortunately they've changed their mind

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Speaker 2: about that, and that was the big issue. Last month

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Speaker 2: we saw them revise down their forecast for growth but

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Speaker 2: actually revise up forecast for inflation. Nonetheless, because they looked

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Speaker 2: at the productivity data, they looked at the lack of

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Speaker 2: traction on inflation and decided, actually, this economy is really

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Speaker 2: not very fit at all. For our part, we're optimistic

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Speaker 2: that actually what we're seeing is just really persistent lags.

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Speaker 2: There are a lot of prices in inflation that depends

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Speaker 2: on inflation that's gone before even you know, insurance. A

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Speaker 2: lot of people are talking about insurance and rate hikes

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Speaker 2: for example. That depends a lot on construction costs, which

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Speaker 2: of course the Reserve Bank absolutely does influence VI it's

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Speaker 2: impact on the housing market. So some of it, we

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Speaker 2: think we just have to be patient.

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Speaker 1: Sharon. It's so good to talk to you. Thank you

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Speaker 1: very much. Really appreciate the good news that Sharon's on

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Speaker 1: A and z's chief economists. For more from Heather Duplessy

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Speaker 1: Alan Drive, listen live to news Talks. It'd be from

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Speaker 1: four pm weekdays, or follow the podcast on iHeartRadio.