Nicola Willis: Finance Minister on the OCR rise, petrol prices rising due to the US-Iran strikes resuming
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Why did the Reserve Bank vote unanimously to lift the OCR and was that expected?
So 25 points, maybe one or two before Christmas still to come. The great cash rate debate rages, of course, as the RBI argues one, inflation still needs to be contained, but two, growth is real and they don't want those pesky price rises to cause any trouble. It was consensus as well, which I thought was interesting. The governor shortly, but the finance minister, Nicola Willis first. Good morning.
Good morning, Mike.
So that consensus vote versus the market, which was heavily divided, did that surprise you?
Well, what the committee made clear in their statement of meeting was that they thought that lifting now would prevent them having to go harder and faster later. And so I wasn't surprised because actually the markets had essentially already priced in a hike. The question was around timing, but you haven't seen a big leap in fixed rates overnight. I think that reflects the fact that the market had already kind of factored this in.
At what point would you be worried before the end of the year, if there was two more or one more or no more?
Well, as is always the case, it depends on economic events. And while I've been celebrating, as I'm sure many New Zealanders have been, the big fall in the petrol price at the pump and how exciting that is for reducing prices across the economy. Of course, just in the past 24 hours, we've seen the price of oil leap up 5% as the skirmish in the Middle East continues. There's just a lot of unknown factors, and I think it's very important the Reserve Bank respond to the actual data and information they receive. We still don't have the full information about what happened in that three months when the crisis was peaking, how high actually did inflation go, what did happen with growth. And until I've got that information, it's pretty difficult to guess what the right response through the OCR is.
I'm sure you're pleased, but are you at all surprised that part of their equation yesterday was about growth? They do see growth. It is real. You're seeing some amendment in Q2. A lot of people said, no, it's going to be a disaster. No one says that now. Could be sure it'll be flat, might even be slightly backwards.
How does Nicola Willis explain the timing and market reaction to the OCR decision?
But growth is real. It's back. That's all good. But does it surprise you?
Well, that is the silver lining in yesterday's statement. I'm never going to be out there cheerleading for interest rate rises, but at the same time, having the Reserve Bank confirm in sober terms that the government's assessment that economic recovery is underway is good to see. We had a good three months starting the year We got put off the pace by events in the Middle East, but the consensus among economists is actually we're going to bounce back strongly. And that's really positive because that's where income growth will come from. That's where jobs will come from. That's where opportunities for New Zealand businesses will come from. And that's our government's plan. Get the conditions right so the economy can grow and people can get ahead and life in New Zealand can be more affordable.
My concern with what they said yesterday is this idea that the economy is so constrained that you can't pass price increases on. I don't see that. I see the opposite in the real world. I worry at times whether they're in the real world. I mean, prices are rising. You can't deny that. And that's inflationary, which is part of the problem, isn't it?
Yes, prices are rising. But if you look at recent survey data, what businesses are saying is that their pricing intentions, i.e. how much they intend to increase prices, has reduced somewhat. And I think that reflects the reality that many businesses have kind of absorbed what happened during the Middle East period and gone, actually, we can't afford to pass that on to too many of our consumers too hard and fast because actually they'll walk away. They'll stop buying our products or services. And that's actually what you want to see. You don't want to see pricing spin out of control and firms to be taking complete advantage of events internationally.
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Chapters
4 chapters
1
Why did the Reserve Bank vote unanimously to lift the OCR and was that expected?
0:00–1:53
2
How does Nicola Willis explain the timing and market reaction to the OCR decision?
1:53–3:56
3
Could rising oil prices from renewed US–Iran fighting reverse falling petrol prices?
3:56–5:19
4
What data does Willis say the Reserve Bank needs before deciding future OCR moves?
5:19–6:53
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