The mortgage-free Governor of the Reserve Bank of NZ, Adrian Orr, says inflation is ‘evil’. In this extensive interview, he discusses his plan to reduce interest rates and his regrets.
Slowing inflation means a long-awaited interest rate cut is looking more likely this year, an economist says.
The Reserve Bank yesterday kept the Official Cash Rate (OCR) at 5.5%, the eighth consecutive time it held steady.
But the central bank’s Monetary Policy Committee said it was conscious that interest rate pain might be feeding through to the domestic economy more strongly than expected.
“Yesterday’s statement was certainly a shift in the right direction, but it was a real lurch,” former Reserve Bank head of financial markets Michael Reddell told Newstalk ZB this morning.
“It was very different in tone from the statement they brought out only six weeks ago, which was talking up possible rate hikes later this year and not even beginning to cut until August next year.”
Reddell said the RBNZ indicated it would be more responsive to a fall in inflation.
“It’s all over the place, but a shift in the right direction.”
A rate cut for August this year was now being more frequently discussed, Reddell told Andrew Dickens.
Next week’s consumers price index (CPI) data would be closely observed, he said.
A noticeable drop in that headline inflation figure could make an August OCR cut more likely.
But he added: “November seems like it’s more or less in the bag.”
He said a 25 basis points OCR adjustment to 5.25% was the most likely scenario.
“But look, these guys do lurch, so nothing would be entirely surprising.”
He said council rates and insurance had recently been driving much of the inflation increases but those had little to do with monetary policy.
“The economy is very weak. The Reserve Bank statement acknowledged it yesterday. It looks like inflation is really beginning to fall away quite sharply.”
He expected volatility, and said that volatility typified many other countries too.
Reserve Bank Governor Adrian Orr and his colleagues may be more responsive now to drops in headline inflation figures, an economist says. Photo / Mark Mitchell, Herald graphic
“The global picture broadly is heading in the supportive direction. We’re seeing the global economy slowing, which is not surprising with interest rates having been at [the] highest levels for 15 years for for a year or two now.
“Australia’s a bit of an exception. They probably haven’t got rates up high enough to get inflation comfortably down. And so their economy and labour market’s still running on reasonably strongly.”
