Reserve Bank’s Christian Hawkesby on rates, recession and resilience

The deputy Governor of the Reserve Bank says its rate hikes have had the intended effect on the economy, allowing it to ease up, but the historic cycle has taught it a few things.

Namely, the impact significant fiscal stimulus can have on consumer spending and the central bank’s own understanding of supply shocks on price increases.

“I think that’s been one of the big lessons is just the, the impact that the supply side can have on that story and it’s, it’s out of our control,” Christian Hawkesby told Markets with Madison at the Financial Services Council conference in Auckland last week.

“[And] how potent fiscal policy can be when you have something like the the wage subsidy.”

The RBNZ’s monetary policy committee, which Hawkesby was a member of, decided to cut the official cash rate (OCR) by 0.25% last month.

Speaking about the decision, Hawkesby explained how suddenly the evidence of economic pain arose, after months of concern about certain areas of price increases becoming embedded.

“Through the course of June and July, pretty much everything moved at once.

“All of those pricing intentions, inflation expectations, headline inflation, all these things came down at the same time that all of the economic activity indicators fell as well.”

Those indicators are what led the market to heavily price in interest rate cuts ahead of the RBNZ’s move.

Hawkesby defended its earlier communication of the likelihood of a rate cut in August, despite its indications signaling a possible increase in the OCR.

“We did change our tone in terms of acknowledging what we were seeing, and we started to talk about how policy isn’t going to be restrictive forever.”

Watch Christian Hawkesby discuss the level it is planning to lower interest rates to, and bank competition, in today’s episode of Markets with Madison above.

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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Madison Reidy is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.