Jono, Ben & Megan - The Podcast - How The OCR Affect US!

Episode Date: October 9, 2024

We chat to Brad Olsen economics commentator! Will the offical cash rate go back up? We test our economics knowledge... How to sound smart in the office talking about finance! See omnystudio.com/listener for privacy information.

Yesterday, there was news, it's been all over the news the last 24 hours, Reserve Bank cuts OCR by 50 basis points. And I have had conversations with people, and I'll be honest, I didn't really know what I was saying about it. The general vibe you get is that it's a good thing. Yes. And I know that it stands for official cash rate. Yeah, yeah.

But other than that, I'm like, what? So we thought maybe we could ask some what we think might be silly questions, dumb questions to someone who knows all about it and hopefully they can explain it so we can all learn and we can all have those conversations with a little bit more confidence than I've had over the last 24 hours. Brad Olsen is a chief economist and he knows what he's talking about and he is very good at explaining things in layman's terms. Good morning, Brad.

How are you? I'm well. How are you guys? We're good. Nice to in layman's terms. Good morning, Brad. How are you? I'm well. How have you got? We're good. Nice to talk to you. Look, we've been struggling all morning wondering how to approach this news about the OCR for the fact that we don't really know entirely what it means other than people keep saying it's good.

It's a good thing. And we know that it stands for official cash, right? Yes. Yes. So, Brad, help us out. You've got a good, solid start there. Good, solid start that we're going with. Okay. So Brad, help us out. You've got a good solid start there. Good solid start that we're going with. Okay, so please help us out.

So what's happened yesterday? And just dumb it down and then dumb it down some more. Okay, so effectively, the Reserve Bank didn't want people to spend as much money because there was too much inflation when all the prices kept going up and up and up. So they raised the official cash rate because basically the official cash rate is the mortgage rate that your retail bank pays. So your ANZ and your BNZ and that, the OCR is their mortgage rate. So if their mortgage rate comes down, then they can drop your mortgage rate that you pay on your house. And that means that everyone can, if they don't have to pay as much on their mortgage, can spend a bit more money out there in the economy.

I have never heard anyone explain it that clearly. Yeah. Okay, so that's come down. So this is good news for people that own houses, right? And what about when you go to buy things at the supermarket, things like that, does it mean prices will come down or does it mean that people maybe have more money in their account? More that second option.

And it's not going to be immediate, right? The Reserve Bank cut the official cash rate yesterday. It's not like everyone goes to refix their mortgage five minutes later. So at some point over the next six, nine, 12 months or so, people will go and refix their mortgage. They'll refix it lower. Therefore, they won't have to pay quite as much as they did before on the mortgage. They've got a bit more cash left over that they can spend in the shops and do whatever else. Because basically, the Reserve Bank said, look, we were spending too much and we were generating too much inflation. They raised interest rates. Therefore,

at the moment, we're now not spending enough and no one is raising prices. So we've probably overcooked it too much on the other side. So now they're saying, actually, we need people, we want people to spend a bit more money. They can go and spend a bit more. So we're providing a bit more relief. Here's my question, is that because inflation has come down, it's now at 3%, which is quite low, considering what it has been, and it's coming up to Christmas, everyone is going to start spending a bit more money. How volatile is it?

Like, can the OCR then go back up again? Technically, it could, very unlikely at the moment, because realistically the OCR is still a lot again? Technically, it could. Very unlikely at the moment because realistically, the OCR is still a lot above where it sort of should be to just have sort of normal economic functions. So it's still going to be limiting people. And I think, look, going into Christmas,

people are going to be bargain hunting a lot because people are still worried about their jobs. They're still worried about how high interest rates are. Someone the other day sort of said they wouldn't get out of bed for anything less than a 70% discount at Briscoe. So, you know, it's going to be quite big to get you to spend.

So it's good news, but it's not immediately like we're just going to go and run to the shops and spend it up large. It's a bit better than before, but it's not sort of rocket ship to the moon. If we want some banter to say to people in the office today, what's one line that would make us sound like we're smart? Oh, what's your pick for November's OCR cut? Okay. Oh, okay. I like that. What's your pick, Greg? So what do they

say to us, and what's your pick? Then we say, oh, it's too hard to say at this stage, or what are you thinking? Look, my pick is 50, but there's an outside chance of 75, so a much bigger cut to try and stimulate a bit more spending again. That'd really set the cat amongst the pigeons. That's what I was thinking too. I was thinking somewhere

between 50 and 70, weren't you Megan? Yeah, that had really set the cat amongst the pigeons. 64 for some reason I thought, but anyway that was really, the cat was getting into the pigeons then. Brad, thank you so much for helping us out this morning. We really do appreciate it. It's been lovely to chat. Have a good day. Nice to talk to you. There is trouble

in your household. There is, yeah. It's not to do with the OCR.