Mike Jones: BNZ Chief Economist on the expectation the Reserve Bank will hike the Official Cash Rate from 2.5%
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Why does Mike Jones expect the Reserve Bank to raise the OCR today?
Market seems to think the cash rate moves today, take us to two seven five. Big question of course is what then Mike Jones, B and Z chief economist, is back with this morning. Good morning, Mike. What do you say to people like Jared Kerr who argue we need to wait? Well I think
Jared's still saying that the Reserve Bank will will list uh the official cash rate. I mean I I do think at some point there will be cause to to to pause and kind of see how the economy means. been coping with the rate increases. Today, I don't think that time is now though. You know, it it might be when we actually get back to That sort of neutral setting the Reserve Bank seems to be targeting, so three percent, potentially three point two five percent, something around there.
Okay. So if you're saying say three, three point two five, so you're talking about one each meeting until the end of the year?
What is the forecast for the number and timing of rate hikes before year‑end?
Yeah, that's our forecast. Uh that's right. So we we've
forecast a meeting uh sorry, a h rate hike for each meeting of the remaining this year. But like we've also said Reserve Bank may pause and but to us it would b probably make more sense if if they did that or if they decided to do that. Yeah, it after the October meeting. When you've got the cash rate, say back at at around that three percent level.
And do you reckon consensus today? Do you see that or not? Uh consensus for uh for a lift today? No, for the vote. Yeah.
Will the Monetary Policy Committee reach a consensus on today’s hike?
In other words, the monetary policy committee are six out of six.
I mean that would be my my expectation. I mean it's not outside the realms that it it's not a a a consensus. But look, the Reserve Bank told us back in July or hinted pretty strongly. This we would see additional rate increases. There's been nothing really in the numbers uh since that time t to throw them off. that expectation. And again we're not quite back to neutral yet. So I I would expect it to be uh consensus and may but maybe a little bit more sort of disagreement comes in as as the rate increases a a little further and uncertainty about on where to next increases.
How likely is a pause in rate increases once the cash rate hits around 3%?
How how much debate is there uh among your lot? I know um Stephen Topless who works in your bank, he he's he's got it ending up at about four percent in the middle part of next year. I mean is he an outlier or are you all saying roughly the same thing? I think there's a couple up around
that level. Look I mean we've never had really high conviction that s sort of four percent uh exactly is the number. It's it's basically just a a bit of risk management that says, well When the Resort Bank starts lifting the OCR, it normally stops or the OCR normally peaks. Somewhere north of that. neutral level. Now the Reserve Bank's got a forecast horizon estimate for for the neutral rate at three and a half.
What are the differing views on the neutral rate and possible 4% scenario?
So we've basically said, Well, you know, four could be the number, but it's open to conjecture as to whether it's Yeah, somewhere between, say three and a half and And four.
What's your vibe on inflation? So we get a read overnight from Europe and that's June, July, August, it just keeps on going up again. There's a I don't know, a bit of commentary around this country that the the the ability to pass cost on outside of rates and stuff, is exceedingly limited. We won't pay it, therefore the lid's on and it's heading in the right direction. Is that about right or not?
Yeah, I think I think that is right. I th I think inflation, well, we think it's it's peak. and and will come down and certainly one of the reasons it's going to come down, we think is it is very difficult for for business to pass
How does inflation outlook influence the Reserve Bank’s policy decisions?
costs on, we're in a weak demand sort of environment, you know, margins are under huge strain. I th I think the question comes in really as to well, how fast does inflation come down? You know, do do we go you know, rapidly back down through the threes, you know, or not. Uh we still think inflation stays above the top of that Zooback target range for for most of the next twelve months and Some of the stuff we're we're seeing offshore, even overnight, uh around oil prices sort of doesn't give too much comfort in just how quickly inflation could come down, you know, could get stuck in the in the
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Chapters
6 chapters
1
Why does Mike Jones expect the Reserve Bank to raise the OCR today?
0:00–0:45
2
What is the forecast for the number and timing of rate hikes before year‑end?
0:45–1:12
3
Will the Monetary Policy Committee reach a consensus on today’s hike?
1:12–1:48
4
How likely is a pause in rate increases once the cash rate hits around 3%?
1:48–2:28
5
What are the differing views on the neutral rate and possible 4% scenario?
2:28–3:14
6
How does inflation outlook influence the Reserve Bank’s policy decisions?
3:14–4:06
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