Mike's Minute: The Reserve Bank didn't inspire me

The Mike Hosking Breakfast

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4M ago 2:09

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Call me superficial, but to watch the Reserve Bank heavyweights lined up, as I did Wednesday post their cash rate decision, I did not see dynamism.

These people outwardly do not fill you with any sense of excitement.

The Reserve Bank is in a spot and, as a result, so are we as a country.

A couple of semi-interesting things happened and also one very interesting thing.

They voted 5 to 1 to cut. They don’t vote that often.

They also offered alternative scenarios, which they haven't done for five years. Alternative scenarios are not a good sign. If you have enough of them, you are literally making stuff up.

Anyone can drum up alternative scenarios. What I want to hear more of from experts is what is actually going on.

The important stuff is they have no bias on further cuts.

A lot of people thought we would get a cut yesterday, followed by one, possibly two, more.

The so-called "neutral rate", that's the cash rate settling at 2.75% or 2.5% – that now seems to be off the table.

Why?

They argue inflation, which is what drives them. That's their mandate.

The trouble with that is inflation is only just in the band. It's heading more towards the top of the band and here is the really big part – growth, or large dollops of growth, are not driving this inflation.

We are barely growing, if growing at all. Yet inflation is still a thing. That's not good for an economy and it's not good for the Government.

The Government, namely Willis and Luxon, leap, and have leapt, on each announcement talking about the money coming back into the economy as the interest rates drop. If the bank isn't cutting, then rates aren't dropping, and we aren't spending or feeling remotely bullish.

The Reserve Bank doesn’t care that much because they are fixated on inflation, whether it's driven by factors beyond our control —like insurance, shipping or councils— or growth.

Yes, we had growth in Q1. It was quite good growth too. The live GDP tracker has Q2 up a bit, but not much.

But it has annual numbers negative and inflation trending up.

What we need is help. We are in a quagmire we need to extricate ourselves from.

The Reserve Bank doesn’t look like they are that interested.

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