Here’s what we learned from the Reserve Bank’s latest speech

Tuesday, 30 January 2024

Those hoping the Reserve Bank would hint at falling interest rates on Tuesday were left wanting.

Ahead of a webinar by chief economist, Paul Conway, the bank said he would make “brief comments” on developments since November’s monetary policy statement.

But those hoping that might mean the suggestion of lower interest rates were disappointed, as Conway stuck firmly to his script, covering post-pandemic changes to the global economy and the importance of robust research and data.

Opening the forum for questions, Conway was immediately asked for an insight on the official cash rate (OCR), but gave nothing away saying only, “We’ll get to that in a few months.”

Infometrics chief executive Brad Olsen said there was no evidence in Conway’s speech that the bank wanted to lay the groundwork for “a more dovish view” that interest rates could be set to fall.

Instead, he had emphasised several factors that seemed to support a strong stance on interest rates.

“The speech noted lower GDP, but also that part of that was due to methodological changes to government expenditure - private demand ‘has mostly been revised up’ and in line with November’s monetary policy statement,“ Olsen said.

Conway also pointed out that, while GDP was lower, that implied the productive capacity of the economy was lower.

“Inflation was the same, even with this lower GDP - so, in my crude terms, inflation per GDP was effectively worse,” Olsen said.

Conway also discussed demand and supply pressures from migration, but highlighted rents, construction costs, and local government rates rises and possible links to migration.

“Nothing in there screams ‘we’re moving hard away from our view of higher for longer interest rates, and are keen to embrace more cuts soon,’” Olsen said.

“Not forceful either way, but I’d say a gentle push-back on expectations of ‘cuts soon’.”