Monetary Policy Challenge

The Reserve Bank of Christchurch Girls' High School Te Kura o Hine Wairoa. We recommend dropping the OCR by 25 basis points from 5.25% to 5% in the October monetary policy review. CPI is currently at 3.3% following two years of tight monetary policy. However, this is still above the Reserve Bank's target range of 1 to 3% and still a significant way from the midpoint of 2% in the household sector. Consumer confidence has just begun to trend upward following a long period of decline driven by improving expectations, less negative media coverage about rising costs of living and recent decreases in interest rates. We don't think this sector will have significant inflationary pressures in the medium term as households consolidate their financial positions in the housing market. The Reserve Bank's addition of debt to income ratios to its loan-to-value macro credential tool is thought to be useful in ensuring that house prices will not accelerate significantly as interest rates ease in coming months. The Overseas Investment Amendment Act, which restricts foreign ownership of residential properties and NZ also continues to dampen demand for housing.

Around 60% of Kiwis own their homes and around two thirds of which have a fixed term mortgage on their property. Consequently, it will be many months before they benefit from falling interest rates and longer before the full impacts of the August cut. In the OCR and retail interest rates has an effect on household spending. Projections indicate that annual net migration will slow to near zero by the 2025 calendar year. This decline is primarily attributed to a reduced appeal due to fewer job opportunities. The fading post pandemic surge and changes to immigration policies. This will take further heat out of the economy, both through lower demand for goods and services and lower demand for housing.

In the business sector, lowering interest rates have improved confidence about future sales and profits. This is reflected in their future plans with investment intentions rising from a negative outlook when last surveyed to a net 7% of firms looking to increase investment and a net 12% of firms looking to increase employment in coming months. Since the output gap is more negative than previously thought with spare capacity and relatively high unemployment, we do not believe there's increases in employment and investment will create any inflationary pressure. In the medium term. The producer price index rose in the June quarter, mostly due to rising cost of electricity and gas prices. In some industries like construction and product manufacturing, the cost of materials, machinery and metals have also increased. The labour cost index has also been increasing, which could indicate some ongoing inflationary pressure through this sector. 

In the domestic economy, the unemployment rate continues to climb as declining. Economic growth results in fewer jobs being available and competition has increased with larger numbers applying for fewer positions. Employment data shows 4 straight months of decline in filled jobs. Unemployment is expected to surpass 5% by the end of 2024 or sooner. According to some economics estimates, this will lead to decreased aggregate demand and the greater output gap means less inflationary pressure due to decreased wages as the economy is further away from capacity. The 2024 Budget includes clear directives for government departures to reduce expenditure both immediately and over the medium term. This will contribute to lower aggregate demand and lower economic growth and some reduction in the demand for labour and other resources. The operating balance is projected to steadily improve returning to a surplus in 2028. However, some of the reduced central government spending on water reforms along with transport and other infrastructure is pushing some of these costs onto local government bodies who are having to increase rates to cover their costs. 

The government is also looking to increase revenue by increasing many fees and levies, although at the same time recent tax cuts have offset the impact of some of these increases in cost to households. These charges, in addition to rising insurance costs, do seem to be contributing to some non tradable inflation risk, but how this and the income tax cuts will impact on the rate of inflation overcoming months is yet to become clear. Interest rates in the USA are predicted to decrease with the weakening economy there, so the New Zealand dollar is likely to at least hold its value and possibly appreciate slightly, and so there is unlikely to be the inflationary pressure that would occur from export receipts in higher input prices, if the New Zealand dollar weakened.

Georgina Hassell-Hopkinson:

Kia ora, welcome to the 2024 Monetary Policy Challenge webinar. Thanks for joining us. My name's Georgina Hassell-Hopkinson, and I work in the external communications team here at Te Pūtea Matua, the Reserve Bank of New Zealand. I'm facilitating today's session, but I've got a great panel lined up for you guys. We're joined by Chief Economist Paul Conway and Senior Analyst Caitlin Davies and Hamish Fitchett. Thanks for coming, guys.

Paul Conway:

Wouldn't miss it, George.

Georgina Hassell-Hopkinson:

Glad. I'm glad to hear that. Look, before we get into the fun stuff, I'll just quickly run through a little bit of admin. So we're going to start with talking you guys through the August monetary policy statement, and then we'll take a bit of a q and a. After that, you'll see that there's a chat box underneath our video stream. Feel free to put any questions in there and we'll get to answering them. We've also had a few pre-submitted questions. Thanks for sending those through as well. After that, we'll hear from the panel a little bit about themselves and how they've found themselves working at the RBNZ. Then we'll do another q and a after that. If you've got any career questions, we'd love to hear them.

Paul Conway:

So it's not just about the economics.

Georgina Hassell-Hopkinson:

No, we want to hear it all.

Paul Conway:

It's about the economists as well.

Georgina Hassell-Hopkinson:

Exactly the full package. Finally, we'll close off with announcing the 2024 challenge question and talk a little bit about our prizes. But look, I think that's enough from me. We want to get to the piece of resistance, the panel Paul. Thanks for joining us.

Paul Conway:

You are welcome. George.

Georgina Hassell-Hopkinson:

Third time back, I think.

Paul Conway:

Yeah, this is my third go at doing this, so I really enjoy it. I think it's a really important thing that we do at Te Pūtea Matua. I think New Zealand, the economy, it's a pretty interesting place. We need more economists, so this is us reaching out into the schools, the economics classes of New Zealand saying, Hey, consider this as the way forward from a career perspective. So yeah. I'm Paul Conway, Chief Economist here at Te Pūtea Matua, Reserve Bank.

Caitlin Davies:

Great, awesome. Onto me, kia ora koutou. I am Caitlin Davies. I'm a Senior Analyst in the Policy Analysis team of the Economics department here at Te Pūtea Matua. I joined seven months ago February this year. Before coming to Teya Maua, I was working at Te Mana Tātai Hokohoko, which is the Financial Markets Authority. They're a co-regulation for Reserve Bank. They also help look after New Zealand's financial markets. So yep, I'm really enjoying being here. I actually did the monetary policy challenge in high school more than 10 years ago now. Wow.

Georgina Hassell-Hopkinson:

A long time ago.

Caitlin Davies:

Long time ago. It is so cool to be here again after On the other side. On the side of it. Yeah. Really, really cool. So yeah, thank you very much. 

Hamish Fitchett:

So this is what can happen.

Caitlin Davies:

Thanks,

Hamish Fitchett:

K, everyone. I'm Hamish. I'm in our economic modelling team, and unlike Caitlin here, I actually didn't make it into my team's monetary policy challenge, so you can still make it here even if you don't get into the policy challenge team. But I'm in modelling team. I started off here at the Reserve Bank about five years ago now, so I was in an economic forecasting team. That's the team who does all the forecasting, looks into the crystal ball and actually writes the monetary policy statements, which we're going to talk about today. And then I also worked in our financial stability department for a while writing financial stability reports, which is another one of our big outputs here at the bank before going over to London for a few years and have recently rejoined here, the bank in the modelling team. So thanks for everyone joining us online.

Paul Conway:

So you are in the modelling team? You were in the policy analysis team. We've also got a forecasting team and we've got a research and analytics team. Those are the four big teams that make up the economics department here.

Georgina Hassell-Hopkinson:

Great. Well thanks for introducing yourself guys. We'll move into a little bit of an overview of our recently released August monetary policy statement. How long ago was that now? About two weeks I think we said. Yes. Wednesday, two weeks. Yeah. Wow.

Paul Conway:

Two weeks ago today. Full on into it. Good fun time

Hamish Fitchett:

Just flies when you're having fun, right?

Georgina Hassell-Hopkinson:

Well especially it was a big one this time wasn't it?

Paul Conway:

Was, I mean they're all big, but this as we'll get into, we cut interest rates, we lowered the Official Cash Rate by 25 basis points. We'll talk through all this in detail. So a quarter of a percent lower, moved it from five and a half to 5.25. Essentially just saying that the Monetary Policy Committee has got confidence that inflation in New Zealand is getting back into that one to 3% target band. So yeah, it was a big one. Yeah.

Georgina Hassell-Hopkinson:

Nice. All right. I think we've got a slide deck up now.

Paul Conway:

We do. Should we listen to that?

Georgina Hassell-Hopkinson:

Go for it guys. Alright,

Paul Conway:

So we're just going to spend the next 15 minutes or so essentially working through some of the big economic numbers that went into that monetary policy statement, the August monetary policy statement, just to give you an idea of the kind of thinking behind the decision that was made and I guess by extension, the type of thinking that you would employ in answering the question, which I know has not been unveiled yet, but it's coming up.

Georgina Hassell-Hopkinson:

A nice teaser there.

Paul Conway:

A teaser, yeah, that's right. Alright, so we start with a disclaimer and the point I want to make with this disclaimer is that the views that are conveyed in a monetary policy statement are the views of the monetary policy committee. So there are seven of us on the committee. I'm privileged enough to be on the committee. So there's four of us that are from within the reserve bank and there's three externals and we make the decision collectively by consensus. It used to be the case that the governor of the Reserve bank currently Adrian or would make the decision, we had a sole, a single decision making model and we've moved to a monetary policy model now. So the outcome of monetary policy that sits on the shoulders of the committee who are very abely informed by the analysis coming out of the economics department. So that's the point I wanted to make around the disclaimer in terms of this bit, what is a monetary policy statement?

We make seven OCR decisions every year. Four of those are in a monetary policy statement, so we do them quarterly and in between three of those statements we have what we call a monetary policy review, which is another opportunity for us to reset interest rates or change interest rates in the economy. But we don't publish a monetary policy statement. So it's sort of a slimmed down version of a full MPS change or go at setting interest rates in the economy. We do put out a record of the meeting in those monetary policy reviews and of course we have one of those in the monetary policy statement as well. And that record of the meeting, it really gives you a strong insight into what the committee is thinking about. It's a fairly literal sort of outline of the discussion that went on around the monetary policy table

Hamish Fitchett:

And while we're on that point, actually these here are going to be your bread and butter for this policy challenge. These are really great documents. They've got all of this amazing information and economic analysis in there. So definitely go have a look, read it through, try and question what you're seeing in there and it'll really help you when you come to pulling together your own views as part of this policy challenge.

Paul Conway:

Absolutely.

Georgina Hassell-Hopkinson:

Oh, a great hint there.

Paul Conway:

Well that makes sense, right? This is how we do it. So how do you do it? It should be a bit kind of similar to how we do it. I would say that if you want to know what just in general even, not so much for a question, but just in general, if you want to know what's going on in the New Zealand economy from a sort of business cycle monetary policy perspective, these are really quality documents that the team puts a huge amount of effort into and they're really informative, really rich rundown of where the New Zealand economy is at. Alright, so let's get going on some graphs like all good economists, we bought a heap of graphs to the party so we're just going to kick this around between ourselves, have a bit of back and forth, but let's go. You want

Hamish Fitchett:

To kick it off? So this first graph we have here is showing gross, gross domestic product. So this is how much we can produce in the New Zealand economy at any point in time.

Georgina Hassell-Hopkinson:

Sorry, I've got a quick question, sorry, this might a bit simple. What is gross domestic product? Is that like supermarket shopping?

Hamish Fitchett:

It's the value of everything and the one we've got here is our production side. So this is how much we are producing in the economy each point in time and it measures the total activity that is going on. So if you see in this chart here, the pink line is showing the August NPS and this is our latest forecast. We can see it's kind of dipping down a little and this is where you get people talking about a recession is that we're getting less activity in the economy. People are out there, they're producing stuff, but we're just producing a bit less than what we previously did.

Paul Conway:

Sorry. No you go.

Caitlin Davies:

I was going to say like it can be a little bit frustrating as economists having to deal with this, but I like the dips that you can see those really sharp vs. That was when we had covid and we had the lockdowns. So the government was basically shutting down parts of the economy and that meant that there was a whole bunch of production that couldn't take place. Really frustrating from a data perspective because you have to take it into account. The fact that all of a sudden you've shut it off, you've shut it on, it really screws with some of the models. But it is a really cool way to demonstrate you are measuring productivity in the economy. This is what happens when you shut things down and then reopen.

Paul Conway:

It shows you how extreme that pandemic experience was, not just for the people of New Zealand but for the economy as well. That's what I like about it. I think the other point to take from this graph, and I've got this button here that puts a circle on it. I like this. I might use that quite a bit over the next 15 minutes or so, but GDP has essentially been going sideways for the last six or seven quarters after it actually grew quite strongly over the pandemic. Not withstanding those very obvious v-shaped declines in GDP, which are driven by lockdown. So I want to make the point, it's been a tough year and a half since we've come out of the pandemic from a sort of GDP growth perspective, it's been pretty weak, pretty sort of hovering around that zero sort of mark. Whereas normally you can see going back further in time, GDP tends to grow as we produce more and more and more as there's more people and we get more productive and all that sort of stuff.

Hamish Fitchett:

On the more people point, actually our next slide is really good in that we are showing in the pink line here is GDP per capita, so this is GDP but based on the number of people that we have in the economy and you can see towards that vertical projection line, it's actually been coming down a lot very, very quickly over the last few years. So while it's been flat in terms of overall production because that population's been growing a little bit, actually people are doing it worse, they're struggling right now and this chart is really, really powerful and showing that and then our projection period just to the right of that vertical line, this is what we expect to happen over the next three years is showing that actually the outlook is still going to get a little bit worse in the near term but then things will turn a corner and come back around.

Paul Conway:

We are actually, we are projecting that GDP will start to grow a bit more strongly from the end of this year into next year. So again, I really like looking at stuff in per capita terms. I think we are quite big on per capita when it comes to things like the Olympics, medals per capita and all that sort of stuff. I think we were third globally go New Zealand top three we can sort of punch above our weight in that arena. But I think looking at economic aggregates like GDP per capita gives you just a really good indication of how economic life is on average for each person in New Zealand. And again, I'll make the point on this graph, the mao, the pink line there you can see that GDP output per person has been pretty weak over recent quarters.

Hamish Fitchett:

This is really that story that you keep hearing in the news and when you go and talk to different people, the economy is struggling, people are doing it tough right now and this is what they're talking about is that GDP per capita tracking back downwards.

Paul Conway:

Alright, what's next? Labour is less of a limiting factor on production. So this is quite interesting. This is survey data, someone QSBO, quarterly survey of business opinion. They go out and ask businesses what's the factor that's really holding your business back? What's the kind of constraint on your growth? And you can see that over the pandemic years it was all about labour. So demand in the economy was strong, businesses had lots of orders, that blue line is orders, it wasn't order. Books were strong. The challenge was to find people to actually do the work and it's the first time I've ever sort of walked down the street and you see signs and windows saying only open three days a week because we can't find workers to do the job. So that was a really a distinctive feature of that Covid period was a shortage of labour. Our borders were closed and immigration was pretty much zip demand was strong. So that really took off that difficulty of finding workers.

Georgina Hassell-Hopkinson:

I remember Queenstown, I went down for a holiday and it was just pretty much every single store was closed and they like we are open but only Saturday, Sunday and no day during the week. It was insane.

Paul Conway:

Queenstown was insane. Kids at McDonald's were getting 30 bucks an hour.

Georgina Hassell-Hopkinson:

Yeah, that's right. Yeah.

Paul Conway:

Taking time off school to go work at McDonald's which is meh.

Caitlin Davies:

I just wanted to actually maybe clarify for if anyone's their first time seeing this graph. I know I was confused when I saw it for the first time. The line going up means that that's a challenging factor, that's a problematic factor. So orders coming down, that blue line coming down, that means that they weren't too concerned about incoming orders. But when it bits back up again that means, oh wait, no, we are really concerned we're not getting enough orders. So just to clarify,

Georgina Hassell-Hopkinson:

Is this measured off concern, not numbers of orders and that kind of stuff? Interesting. Okay, cool.

Paul Conway:

It's a portion of businesses that say orders or labour is our biggest constraint on growth at the moment. So you can see more recently as the labour market has sort of cooled a bit and we've had a huge migration surge up until relatively recently. So it's less about labour being the constraint and it's more about orders, which is sort of going back to normal. That's how it's been pre the pandemic, pre covid. So it's kind of small New Zealand businesses, most of our businesses are very small. Many of them sort of operate in insular markets just saying if only I had some more kind of orders I could grow.

Hamish Fitchett:

And that example you used of Queenstown during the pandemic is actually a great one. If you're only open for a couple of days, people are rushing to get in and buy as much as they can when you're open. So that's why we see that big drop down for orders. People are going into their shops and when you're filling out this survey, if you're a business owner you're like wow, I've got more people coming into my store than I can actually possibly handle.

Paul Conway:

So a bit of a frenzy. It was kind of the sense definitely overheated economy, which is an overheated economy consistent with inflation getting out of the box, which is what we've been sort of battling away at since I've been here the last couple, two and a half years or so. Alright, so that's constraints on businesses, A bit of labour market.

Caitlin Davies:

This is a cool one, I like this graph. So it shows basically the ratio between how many vacancies there are in the economy and how many people are unemployed. So unemployment remember is people who want to find a job but are unable to. So if you have a high ratio of vacancies to unemployed, it means hey there's a lot of potential jobs out there. It's, there's not that much unemployment to fill them, but that ratio coming down recently suggests either that the vacancies are dropping off or unemployment is beginning to pick back up.

Hamish Fitchett:

Interesting. This is actually quite an interesting story going on here because unemployment actually, it's starting to kind of pick up a little bit but not a huge amount. So you can see the line towards the end is coming down really steeply. It is, but this is just because the number of job ads going out there is actually moving a lot because unemployment hasn't really moved much, which it's moved a bit.

Paul Conway:

It's 4.3% I believe.

Hamish Fitchett:

It's starting to come up as that GDP numbers is coming down.

Paul Conway:

But this is easing as Hamish is saying because of there's less vacancies in the economy. So demand for labour from businesses has fallen quite a bit as the economy has cooled down over recent quarters. It's actually if we're getting the labour market cooling through less vacancies, I kind of like that. One of the numbers, we've got many different ways of assessing how hot the labour market is and one of them is unemployment and it's one that we sort of pay particular attention to because I think whether you're in work or not has a huge impact on wellbeing and family finances and all that kind of stuff. So we're very acute to what's happening in the labour market in general, but with unemployment as well. Sorry George, were you going to say something?

Georgina Hassell-Hopkinson:

Where that line ends now, is that where you guys are expecting it to be? Is that normal?

Hamish Fitchett:

That's where we're currently at. That's actual data. Actual data.

Paul Conway:

So there's no projection here.

Caitlin Davies:

Oh okay. Yeah.

Georgina Hassell-Hopkinson:

Apologies. That's my mistake.

Paul Conway:

Not at all.

Caitlin Davies:

There's a vertical line that usually means there's a break, what's currently happening projecting no vertical line at the end. So this is

Paul Conway:

So this is all real data and some things we project, like we started with GDP, there's a projection there over the projection our horizon in the next three years. But other stuff like this, we don't necessarily project it or we don't publish projections on it.

Caitlin Davies:

And that's something the forecasting team is responsible for is estimating those projections. So there's a whole team of people whose job it is to fine tune.

Hamish Fitchett:

Separate it out and you become a real expert in one area of the economy for about six months, usually a couple of MPS’s really focusing on doing your unemployment forecast would be one.

Paul Conway:

So we do forecast unemployment but not so much vacancies. So that's kind of an interesting point. If you do come and work here, you will spend significant time drilling down into something like the labour market and forecasting that in the forecasting team. Or you might be doing research around it in the research team, but then we'll move you on to something else. So you actually get quite a broad experience working here in terms of different aspects of the economy. I compare that to central banks overseas where they've got more economists and you can sort of spend a career very much focused on one aspect of where the economy works. I think one of the advantages of us being a relatively small central bank and a small economy is that you get a really good breadth of experience in terms of the things that you look at.

Hamish Fitchett:

And you get that experience straight off the bat as well.

Paul Conway:

Absolutely.

Hamish Fitchett:

By the time COVID hit, I was responsible for forecasting our exports, which as you can imagine was quite an interesting time trying to pick how much we can sell to the world and it's straight in there. You don't have training wheels on, you get the experience, you are trusted to be able to produce great outputs from the get go, which is cool.

Paul Conway:

And you end up we'll have grads presenting to the Monetary Policy Committee. So you end up talking to the Governor and MPC members pretty much straight off, well not straight off the bat, there's a bit of a lead in period. It's not quite sink or swim, but you definitely get really good access to the whole gambit of what we do in terms of setting monetary policy from a very early stage in your career. Alright, what do we got next?

Hamish Fitchett:

Oh this is another really good one. So this is looking at wages and the growth of wages over time. So we call it wage inflation and the LCI that you might be seeing there in the chart title means the labour cost index. So there's a specific measure of the wages that people are getting in the economy. It's not a certain job but it's an overall kind of average measure. And we've got two different lines here. So the pink line is titled nominal and the blue line titled reel. The difference between these two is that the real line is taking that pink line and then subtracting off inflation. So the price of goods, it's really measuring in the blue line, how much can you go out and purchase, how much is your purchasing power growing? So you might be getting a, what is the top of that pink line? 4% nominal wage increase. But if other prices in the economy are going up by five or 6%, then actually you might not be able to purchase as much as you previously did. And that's what that real line is showing is can you continue to purchase what you previously did based on your wages?

Paul Conway:

So it's the purchasing power of your pay packet, the four Ps.

Hamish Fitchett:

And you can see the COVID period very clearly there.

Paul Conway:

Yeah, it wasn't the best time for the labour market.

Caitlin Davies:

So that was prices increasing at a faster rate than the average New Zealander was able to increase their income. It's really hard. Yeah, hard to see. Yeah.

Paul Conway:

So households getting stretched over that period. It's above zero now. And I will also say this is one measure of wages, this is the labour cost index. There's a fairly broad, there's a nuanced story in terms of what's been going on in the labour market over recent years.

Caitlin Davies:

Don’t we have a heat map somewhere?

Paul Conway:

We do indeed.

Caitlin Davies:

Yeah, it it's a really cool heat map. It shows all these different labour market indicators and whether they're in a good shape or a bad shape, really cool piece of work.

Paul Conway:

Yeah, yeah, that's kind of what I was saying earlier. We look at a lot of different indicators of where the labour market's at to come to a judgement on overall labour market conditions and data visualisation is really important. How do you put that sort of information out there in a way that people can understand? At one glance it's a really interesting bit of what we do. How do you communicate this stuff to people so that they get it? Because my kind of view on this is the better that people New Zealanders in our case, understand how the economy works. It means the economy works better and people are making better decisions. So I do think communication and almost educating people, economic literacy, lifting, that is a really important part of what we do and your teachers are doing in terms of running economic classes in New Zealand schools. Good stuff. Alright. Is that enough on the labour market? So now we're looking offshore.

Caitlin Davies:

An ugly graph. I'm not going to lie.

Paul Conway:

We have been told off about too many lines on this graph and there are better ways to visualise this stuff.

Caitlin Davies:

But it's a good graph just for any team members. This is a great graph.

Paul Conway:

It's not you, it's the graph. So Hamish do you want?

Hamish Fitchett:

Yeah, I was just going to say what we're seeing here, well it looks like a lot of spaghetti. This is inflation across a lot of the kind of big economies that you might hear us talking about or the ones that we are monitoring who we trade a lot with from New Zealand. And also just you can see on there we've got the United Kingdom, we might not trade quite as much with them anymore, but we still are similar sort of structured economy and to monitor these peer economies as well to make sure that we are doing our policy in a way that's not entirely different from the rest of the world and we can learn from these other countries and their experiences.

Paul Conway:

Absolutely. And one thing this graph is showing us is we've had inflation recently, it's been a common global experience with the exception of China, which is a very different economy to the other ones on this chart. Inflation got out of the box over that period I think in New Zealand where the black line, that's the one there. So inflation here didn't peak as high as it did in some of those other countries like the Euro area and the US and the uk. I think it peaked at 7.2 or three here. But essentially the same dynamics of inflation getting away on us and then coming down more recently as central banks have put up interest rates and the global economy slowed down, et cetera, et cetera.

Hamish Fitchett:

Part of that's because we're an open economy, it's a global economy. We are part of the world and the shocks that have happened over everyone was locked down.

Paul Conway:

That's right.

Hamish Fitchett:

Everyone has struggled with the energy crisis that was kicked off after the Ukraine invasion.

Paul Conway:

Well at least So us, the closer you were to that conflict, the sort of higher inflation spiked. So Europe, the uk, a lot of, I think that's kind of fundamental reason why inflation spiked a bit more higher in those economies than it did here. We would've had a bit coming through oil prices, but in terms of gas, we don't guess gas out of that part of the world. So we were a little bit insulated from it. Sorry. No go.

Caitlin Davies:

I was just going to say that sort of passed through was one of the types of research I think that our international teams was working on.

Paul Conway:

Absolutely. Yeah. So as a committee, as a monetary policy committee, we need to understand all of these things like what's driving inflation, why is it, didn't it peak as much here and what does that mean for our policy decisions? But broadly, just to echo Hamish's point, a lot of countries have been going through a broadly similar experience coming out the back of the pandemic essentially was a global shock and the way we responded to it in terms of fiscal stimulation and monetary stimulus happened across most countries of the world at that time. Alright, so that's the global inflation picture. Back to Aotearoa New Zealand, what have we got here?

Hamish Fitchett:

Reckon you want to explain this one, don't you?

Caitlin Davies:

I'm the newest member of the Reserve Bank, so of course you give me this one, but this is a graph showing business inflation expectations across different horizons. So does a regular inflation's expectation survey of businesses and we ask them essentially, Hey, what do you guys think inflation is going to be over these different time horizons. So what do you think inflation's going to be in one year's time, in two years time, five years time, 10 years time, et cetera. It's a very important survey that we do because it gives us a lot of confidence and a really good insight into how businesses are planning and thinking about price setting. If they think inflation's going to be high in the next year or so, they're more likely to be setting their prices higher and that's likely to be driving an inflationary spiral. So what we really want to do, what we want to see is that inflation expectations anchoring at somewhere in the middle of our target then 2%, yeah, 2% back within one to 3% please. But yeah, 2% is that anchor. So you can see here the one year inflation expectations really spiked. That was during the period of high inflation. So when prices are already increasing you're more likely to think that they're going to keep increasing. A lot of people look at what's happening around them when they're forming their expectations. So inflation was high, expectations for future inflation was high, but recently that's been coming back down and it's very close now to being anchored exactly where we want it to be, which is really awesome.

Paul Conway:

Yeah, it's interesting that, what is it, five and 10 year they hung around that 2%. They tend to, because people know that the central bank that the reserve bank is going to conduct monetary policy in such a way, we're always going to bring inflation back to 2%. So that is what it's going to be in five years time in 10 years time. But as Caitlin was saying, the one year and the two year got away on us over that period and that's kind of inflation expectations. The way I think about it. They become self-fulfilling. If I think inflation's going to be 5% next year and I'm a business, I'm going to put my prices up to get ahead of that so it gets baked in, inflation becomes persistent. So a lot of what we do is sort of leaning against that with higher interest rates impacts consumers.

Hamish Fitchett:

So not only businesses, but if I expect something to be 5% more expensive next year, I might go out and buy it now, right? Yeah, that's right. Try and get ahead of the game. I expect it to be more expensive. Why not buy it when it's cheap? And then the business owners have all these people rushing in and they're like, wow, everyone wants my stuff. I'll increase my prices a little. And all of a sudden they've reinforced their own idea and they're like, wow, I knew this was going to happen. I'm so clever.

Caitlin Davies:

Also, just throwing this on the table, it kind of decreases the tolerance. If you're expecting prices to go up 5% and you see a price go up 5%, you're like, oh that's fine. Yeah, I'm okay with this and comes a bit more, it becomes more normal as

Paul Conway:

They thought it would be.

Caitlin Davies:

And then you're not fighting against it anymore.

Paul Conway:

So you're not shopping around.

Caitlin Davies:

What you want to be doing is finding the deal that if you're expecting it to be expensive, then you're not going to be looking for the deal.

Paul Conway:

So you get desensitized to inflation and this is an economy that gets, I really like the way you talk about anchored. The economy is anchored and it's growing in a sort of equilibrium smooth kind of way. And that's our job is to make sure the economy stays anchored in that way.

Hamish Fitchett:

Clearly we're all passionate about this one aim, jumping in on it.

Paul Conway:

I love inflation expectations, I love it. And it's so good to see that inflation expectations, they're all in the band now. This is business expectations and it's not the best survey. We're actually investing in a better business expectations survey. But for what it's worth, it's great to see that. We also measure household inflation expectations. They tend to be a bit higher. Households tend to sort of overestimate actual inflation on average, but they are generally coming down as well. So people are getting used to that idea. We're getting back into a low inflation environment. It's a much harder environment now for businesses to put prices up and also workers. I think it's important to sort of bring workers into it as well. If you're shooting for a 5% pay rise, I mean sure you've lifted your productivity. If you're creating more value from each hour in the work, then some of that extra value will sort of flow to you in terms of higher wages. But if you're just doing that to kind of keep ahead of what you think is going to be high inflation in future, that's not the world that we're in any longer.

Hamish Fitchett:

Yeah, that's an important point. The planning ahead part of this, when you've got lots of volatility and they're moving around a lot, it's really tricky to know what you should be going in and asking for because you dunno what price are going to do in the future. And that's why we have those target band is to give the stability and allow people to plan ahead and make these investments or go into their negotiations for wages and have confidence that actually they'll be able to get a good return for what they're putting in.

Paul Conway:

That's  right. It's like the idea that there's always going to be things that go up in prices. So this is about generalised inflationary pressures in the economy. If something becomes super popular, all of a sudden there's a demand spike, the price is going to go up, it's a relative price shift and it should because that's a really important signal to businesses and producers are, we need more of that, whatever it is. But when inflation in general is high, it becomes more difficult to spot what are those relative price shifts that we should be responding to in terms of making more of X and less of Y kind of thing. So it becomes a harder economy to read when inflation is high.

Hamish Fitchett:

Great. Alright.

Paul Conway:

I think we're getting to the end of it I think.

Hamish Fitchett:

Yeah, I think this is second to last one isn't it?

Paul Conway:

Second to last.

Hamish Fitchett:

So this is what it's all about, right?

Paul Conway:

The beast. Yeah, what we've been battling for the last couple of years.

Hamish Fitchett:

So, this is inflation, this is what we had targeted. Well our goal is to keep consumer price index inflation. That's what the CPI stands for. This is a measure of a basket of pretty much all the different goods consumers would purchase across the economy and

Georgina Hassell-Hopkinson:

It's literally everything. It's your milk, your bread, your eggs, your PJs.

Hamish Fitchett:

You've got your makeup in there as well.

Georgina Hassell-Hopkinson:

There's, there's lots of random stuff in there like cars I think as well. Lots of, I was quite surprised when I had a look at in the basket and I was like, oh wait, this is actually something that your normal person would put in their basket.

Paul Conway:

Yeah, it's what your average household buys at the shops.

Caitlin Davies:

It does go down to kind of Colby versus Edam cheese or something. I think it goes down to that level, which it's great.

Hamish Fitchett:

And they adjusted over time as well. So Stats NZ, they'll add things and take things out of it. You won't find CDs in there anymore I don't think.

Hamish Fitchett:

I’m pretty sure that dropped out recently.

Paul Conway:

I bet there's was records in there though.

Hamish Fitchett:

Yeah, there would be records.

Paul Conway:

Would've coming back. Yeah, gone the kind of fall and rise of vinyl.

Hamish Fitchett:

Yeah, exactly. And this year tracks the average price changes in the economy over time. So you can see what we've got in the kind of pinkish band between one and 3%. That's our target. We are aiming to have inflation in the target band and specifically there's a horizontal line there at two. We are targeting 2% is the target midpoint of that one to 3% inflation band. And over the last couple of years you can see the pink line has been up above the target band. And that's why we've had high interest rates as a way to bring that inflation back down into target. And you can see the vertical projection line is us showing what we think is happening going forward and we are projecting that we've returned back into that target band. I know, right. And back to towards the 2% target and we'll be meeting the 2% target around mid 2026, the 2%.

Paul Conway:

Yeah. But we believe we're back in the target band. I think our forecast for September quarter CPI is 2.3%. So now this we are living the September quarter. I think we get the actual data out in mid-October. Nice. So monetary policy works is kind of what I take from this graph. Yes, inflation got away on us, but we've managed to wrestle it back into the target ban. As I said, we get confirmation of that in mid-October. I mean this essentially is why we've been able to cut the OCR, which I believe is our next slide. Yes.

So this is our official cash rate. You can see it went down very quickly going into the pandemic. It was set at 0.25% over that period. And then once the bank realised that inflation was getting out of its box, we tightened, we hiked monetary policy, we lifted the OCR very quickly. We did 5.25% in 18 months or something like that. It was a very rapid tightening, but you can see that blue line is what we thought was going to happen in May. The pink line is what we currently, well what we think is going to happen as of two weeks ago, as of the August monetary policy statement. And we think we are at the turning point where the tightening cycle is, well, we're entering an easing cycle, which is good. The point I'll make with this graph, you can see that the pink line is quite different to the blue line.

Like we've changed, there's been a change in our assessment of where the economy is at and I think that's a really important point to get across. The economy is always moving. We project it at a certain date. We know we're going to be wrong to some extent. I've actually been quite surprised about our projections over the last couple of years in terms of how accurate they've been. I think in big picture we've pretty much called this disinflation. Well, but there have been bumps along the way. Absolutely. And when a bump happens, when the facts change, change our mind, what do you do? Yeah. And that's what's happened. So we see the official cash rate sort of gently falling to neutral, overcoming quarters and years.

Hamish Fitchett:

It's probably worth just mentioning how the official cash rate works for the economy in terms of the transmission channels it goes through.

Paul Conway:

Absolutely, good idea.

Hamish Fitchett:

The official cash rate is the interest rate that we set, but no one goes to their bank and gets this as the interest rate for their deposits or their mortgage that the banks will set their own interest rates based on a whole bunch of factors. But this year actually is a very important part of driving the movements in those retail interest rates is what we call them when we lower this. So we would say we're easing monetary policy actually changing the value of money there. So if I want to go out and get a mortgage or something, it's now going to be cheaper for me to do that. It's cheaper for me to borrow than it was previously. So I can borrow money at least cost to myself and bring forward some of my spending that I would've done in the future and spend that today.

And by doing that, I increase the demand in the economy and push up prices because everyone's rushing out to try and buy things again. Or the alternative is if you start tightening interest rates, you've made it more expensive to borrow and then you'd spend less in the future. But there's also a flip side in terms of borrowers. If you are borrowing, it's a plus when interest rates come down, but if you are saving, you get less interest so you get less of a return on your savings. That's right. And it would be great for those of you doing the challenge to dig into the different ways that OCR changes actually transmits through to the economy.

Paul Conway:

That’s a hint.

Hamish Fitchett:

I'm dropping hints every way, dropping lots of them. So make sure you're taking note.

Paul Conway:

So what are the transmission channels? How does a change in interest rate affect people's behaviour and therefore affect inflation? There's kind of the credit channel through the price of mortgages and exchange rate effects. There's all sorts of channels.

Caitlin Davies:

Yeah, and then overall, you're kind of drawing it back to if you're in an overheated economy, if there's a lot of things going on. The analogy I like to use is a sheep dog. So I suppose that this one inflation's getting away from your inflation's going up. It's escaping the band. It's like a herd of sheep. It's overheated, it's running. You send the sheep dog after it. So you increase the OCR, you increase interest rates the sheep dog goes chasing and it pushes that flock of sheep back into the paddock. The band similarly, if you've got a very cool herd of sheep, if inflation's very low, it's escaping out the bottom of the paddock, you lower your OCR, you send the sheep dog down after inflation and it pushes it back up. So you've got an overheated economy, inflation's going up, send the sheep dog to cool it back down again or vice versa. That's my favourite analogy in a way to remember it.

Georgina Hassell-Hopkinson:

That’s the most Kiwi analogy I've ever heard. I really respect it. Thank you.

Paul Conway:

I grew up in Southland so it appeals to me.

Georgina Hassell-Hopkinson:

Great. Well we've had lots of, is that That's it. Perfect. That's all right. So we've had lots of questions come through. Thanks for all of those. Let's start off with a pre-submitted one. Alright. How will small businesses be impacted by new monetary policy, ie lowering the OCR particularly in terms of access to credit and business growth opportunities? Are there specific sectors expected to benefit or suffer more from lowering the OCR?

Caitlin Davies:

That’s a transmission channel.

Georgina Hassell-Hopkinson:

We actually did just get another question saying, do you have any other transmission channels apart from the OCR? So maybe you guys could talk to that as well.

Paul Conway:

There are several transmission channels that we think about, but we have one tool, the OCR, we changed the OCR and it transmits to the economy through these different channels, through the price of mortgage rates, term deposit rates. It has an effect on the exchange rate, which changes the price of imported products. It encourages people to sort of bring spending forward or push it back depending on what we're doing with the OCR. So those are the types of transmission channels that we talk about and think about. But there's only got one pretty blunt tool in the form of the OCR.

Hamish Fitchett:

We use that tool a lot. So there's different ways that we will talk around the tool. So we talked a lot about inflation expectations and the way we publish our projections, our communication around the future of the economy is actually really powerful and those expectations and influencing those expectations. So that's why we always are getting Paul out to do cool speeches.

Caitlin Davies:

We've got a team member working on a speech right now. Actually, I think we to you soon. We do.

Georgina Hassell-Hopkinson:

Keep your eye out for that.

Paul Conway:

That's kind of what I was saying earlier. I just love, well, I love talking about economics to New Zealanders and I think lifting economic literacy is really important. It can be helpful to people's economic decisions.

Georgina Hassell-Hopkinson:

Totally. Look, why do you guys set the inflation target at 1 to 3%?

Paul Conway:

We don't.

Georgina Hassell-Hopkinson:

Oh, even better.

Paul Conway:

That is mandated to us by the government. So we obviously have a view on what the optimal inflation target is and when our, it's called the remit monetary policy remit, which is essentially the government telling the monetary policy committee what they need to be focused on. And we'll engage and have a back and forth on what that should look like. But ultimately it's the government that sets the objectives for monetary policy as it should be as they're democratically elected. We are not. So they give us the task and we carry it out. We're operationally independent, but the goal is given to us

Caitlin Davies:

And it does change. It used to be zero to 2% and then they have reviewed it after a few years and actually one to 3% is a bit more suitable bit for anchoring and avoiding deflationary or the potential that you slip out the bottom and have negative price changes, which is very crippling for an economy.

Georgina Hassell-Hopkinson:

Yeah, totally. Look, you talked about the MPC panel earlier, Paul. Committee, excuse me, not panel. Gosh, this is panel, this is on the mind clearly. How come you need external people? How come you don't just stack the cabinet with all RBNZ people?

Paul Conway:

It's wonderful having externals on the monetary policy committee. They just bring, we don't want groupthink, we don't want to hold bunch of people that just think in the same way about the same stuff. It sort of gets to the diversity is a wonderful thing. I dunno if we're going to touch on it or not, but economics previously, I think it's been pretty male dominated and we've got some amazing female economists in the economics department now, which just diverse groups make better decisions. And by having externals on the committee, it just gives us a broader perspective. We've got a couple of professors there who are just right on top of the sort of more academic literature we've got.

Georgina Hassell-Hopkinson:

Actually, do you want to give a shout out to our new MPC members?

Paul Conway:

Oh, we've got Prasanna Gai from Auckland University, we've got Carl Hanson. He's done a lot of work in electricity. He knows a lot about markets. So there's seven of us each bringing different sort of areas of expertise and we put a lot of effort into sort of, we're talking about herding sheep sort of herding to build consensus around what we need to do with the OCR. And we are getting really good at working across those different perspectives and sort of bringing it to the decision.

Caitlin Davies:

It's really cool actually presenting work to the committee because you get really different engagement and really different responses from different committee members. So if you're presenting a paper on trade previously, Caroline, she will have been really engaged a lot and has a lot of detailed as an external member in the trade area. And now with Sana and Bob, an existing member as well with a lot more kind of academic background, you get really academic feedback with them, which is really great. So you get different types of engagement and they challenge you in different ways. So yeah, it's really nice.

Hamish Fitchett:

Good part of the modelling team. It's always fun having these professors coming in who are really interested in what assumptions you've put into your models and really testing you and making sure that everything we're bringing is robust and actually well tested up to speed with the current cutting edge of economic thought.

Paul Conway:

As they should be. This is such a massively important decision. Interest rates affect everybody in the New Zealand economy. So it is a robust process, what we call forecast week, but we conduct it in very good spirit. I really like the way we do it actually.

Hamish Fitchett:

Yeah, it's a lot of fun.

Georgina Hassell-Hopkinson:

Great. Yeah. Is it difficult knowing how to adjust the OCR given the change will only come into effect months later? We're talking about that lag time there. I think.

Paul Conway:

Well, it changes on the day. For example, two weeks ago we cut it from five and a half to 5.25 as of that moment, that's the interest rate that banks would pay or whatever with their funds held at the reserve bank and all that kind of stuff. I think what the question's angling at is that it takes a while for that change in interest rates to affect inflation. We sort of think that if we change the OCR now, it's going to affect inflation in 18 months to two years time. There's a transmission channel there that we were talking about earlier, changes economic behaviour changes output in the economy and eventually changes inflation and

Caitlin Davies:

Changes like the different transmission parts. You can see some of it happening in real time. So that's right. The decision moment's actually really fun where you get everyone piles into a room and we watch the financial markets. It's really great because you get to see economic theory and action. So if there's what you would call a monetary policy shock, so OCR is lowered more than what the market was expecting, you can see the exchange rate immediately begin to move. You can see interest rates of certain parts of the market begin to move over the course of an hour or two. It's really cool to watch that immediate transmission and know that if the exchange rate, for example, if the exchange rate's fallen, that is going to flow through into import prices eventually. And yeah, it's really satisfying. Some parts are a little bit slower. So mortgages, people fix their mortgages or refix them only for a year or two, but the exchange rate, that's one immediate change that happens, which is cool. It's actually really

Georgina Hassell-Hopkinson:

Cool watching all of those numbers. Once you understand what you're looking at.

Paul Conway:

It's very real time. It's great. You can see the effects of your work pretty much straight away. But yes is the answer to the question. It adds huge complication. The fact that what we do today influences inflation over a year and a half, two years later. This is why forecasting is so important. We have to sort of understand how the economy's going to evolve and how the decisions that we make today can lead to sort of the most optimal economic outcomes in the future.

Hamish Fitchett:

One of the real unique things that I found when I started working at the Reserve Bank is it takes actually a long time to compile data. So for Stats New Zealand to go out there and figure out how much everyone is spending, oh yes, it takes time. We don't currently know what the state of the economy is. So when we talk about forecasting, our first forecast is actually just picking the current period that we are living in and what's happening with the economy right now. That's right. So you've got nail casting now casting that's one. And that's really cool is that you do your nowcast and then you have to extrapolate that and figure out what the future path of the economy is.

Paul Conway:

And we use a lot of, it's true, as Hamish is saying, a lot of that official data coming out of STAT NZ comes out with a significant lag. We don't have Q2 GDP, but there's a lot of high frequency data that we're right across like masses of it. And we kind of feed it into these now casting models that give us a pretty very highly educated estimate of where GDP is going to land in the quarter. So

Georgina Hassell-Hopkinson:

Great. Alright, that's about all we've got time for from the MPS questions. If we do have some more time at the end, I might chuck a few more in. Sounds good. But I'd love to hear about your guys' careers. How'd you end up at the RBNZ?

Hamish Fitchett:

Perfect. I'll take this one please. So I came to the Reserve Bank through their graduate programme back in 2019. I'd done my study, I was an Otago Boys high school student, and while I was there I had a fantastic economic teacher who actually got me down to the university during year 13. I was doing one of my introductory economics classes and then went into the uni there and did my undergrad uni and then moved into post-grad as well. So Otago has this one year master's course that sets you up really well for graduate programmes in economics. It teaches you all that you would need to know and it's really a world-class programme that they're teaching there. So I actually interned at the Commerce Commission between my undergraduate and my postgraduate years. And it's really cool work they do there. They're fascinating stuff that they're focused on their microeconomics.

So for all of those listeners in year 12, I think if it's still the same as it was when I was there, you will be doing a lot of microeconomics and then your year 13 students will be doing more of the macro economics. And that's what we do here at the Reserve Bank is more macro picture. So after seeing the micro at the Commerce Commission, I was really interested in trying my hand at the macro economics as well, getting that full experience. So I applied for the graduate programme and came in at the start of 2019. The first thing I remember on my first day at the Reserve Bank, first day, you don't really remember much, but there's this one grad the year above me and I thought she was just the coolest person ever. So I am now married to Rebecca, who is the very important one.

Georgina Hassell-Hopkinson:

Love at the bank.

Paul Conway:

Yeah, people find working here. There's a good social scene attached to it as well. And I think it's kind of to do with the type of people that are attracted here. I do think people tend to be quite purpose driven. There's a really strong kind ethos of what can we do to lift the economic performance of the New Zealand economy. I think that's a sort of commonality that runs through pretty much everyone in this organisation. So yeah, you do get a bit of that.

Hamish Fitchett:

Everyone's actually really passionately trying to make the outcomes for New Zealanders as good as possible. This is why we're at the Reserve Bank is to improve the wellbeing of New Zealanders. So I was in the economic forecasting team and spent a couple years there writing these monetary policy statements, drawing these graphs and these forecasts that we've done and showing to you guys today. And then I went into the financial stability team, did a little bit more there, which is looking at kind of the risks around what could take place in the economy and trying to figure out is our financial system, where are the risks? What points might hurt if certain shocks popped up? And that involved a bit of stress testing. So stress testing our insurance companies, the Reserve Bank is really cool in that we're actually a full service central bank. So that means we supervise banks and insurers and all sorts of deposit takers, but we also do our monetary policy in the same organisation and that's pretty unique across the world. So it's pretty cool about coming here. It's actually

Paul Conway:

It's actually really useful and it really is the financial stability bit of the bank. They'll come and we'll have a session on financial stability around the monetary policy committee table in August, for example, we came to the conclusion that what we're doing with the OCR, there's no sort of trade off between monetary policy and financial stability. So we're not going to drive the financial system to any sort of danger zones from what we're doing with the official cash rate. So there's real advantages for us having all of that in the one roof. But yeah, as you're saying, it's unusual in internationally.

Hamish Fitchett:

And then the Reserve Bank is also really good at supporting you to keep growing. So I've done my Masters at Otago and that got me into the Economics Department. But once I was here, I wanted to go and learn more. I wanted to keep pushing and developing my economic skills. So the Reserve Bank has a master's scholarship programme that'll support you to go to a world-class university and I went over to the London School of Economics and did a second master's over there, which was unbelievably cool as an experience. And after that year of study, I was able to continue working part-time for the bank while I was there because London's quite expensive. Well, it's cool. London is expensive. And I got to spend 18 months afterwards on a sabbatical doing sustainability consulting over in London. So the things that you can do with economics, if you can forecast, you can understand numbers and economic concepts, you can really touch on a lot of different fields. I did a lot with aviation trying to help them decarbonize, which was a really, really cool experience. And one, since I've come back to the Reserve Bank, I've been able to kind of draw on, and I'm doing a lot of climate change modelling within our economics team and really making sure we are aware of these future shocks and these future pathways that are going to be influencing New Zealand's economy.

Paul Conway:

We have as a climate event. We need to be right on top of that. What does something like that mean for the macro economy and what's our role in terms of setting the OCR to mitigate the worst effects of something like that?

Hamish Fitchett:

Definitely, yeah.

Georgina Hassell-Hopkinson:

Dr. Davies.

Caitlin Davies:

Yes, Dr Davies. Yeah. So it took me a little bit longer to get to the bank. If I go way back when in the origins of why I got interested in economics, I took economics for the first time in year nine. So my dad encouraged me to take economics as an elective. He's a small business owner, so he really wanted me to be able to engage with the sort of language and set me up to be as successful as he is. And I got into economics and at the same time, the global financial crisis was just unfolding. So this was 2008, 2009. Good timing. Yeah. Terrible timing. No, really great. Good timing. Great timing.

Hamish Fitchett:

Yeah, great timing.

Caitlin Davies:

It's very interesting. Yeah. So interesting. Yeah. And it created a lot of headlines. It created a lot of really interesting documentaries and books that were written about what was happening in economics to the people around me. And we'd drive to and from school and we'd see all the business fronts that were closing down all of the houses for sale. And it was really awful, an awful time. And at the same time, I was studying economics and it was explaining to me what was happening and why it was happening and what you could do to fix it and stop it from ever happening again. So I went through economics at high school, really passionate about it, a bit of a hiccup. And kind of my last year of high school, I was talking with my teacher at the time. He was kind of growing around asking us, what do you want to do when you grow up? And at that point I was thinking, oh, I might want to do a PhD in economics. And he kind of looked me up and down and was like, that's quite hard, maybe reevaluate. And I was like, oh, cheers. Thanks. So it was a bit of a hit to my confidence. I went into university. Yeah, I think back to it now I'm like, geez, now you definitely got the last laugh though. Don't you worry. I hope he's watching as well.

Anyway, I went into university. I was actually dead set on being an accountant at that point. I had given up on economics, but then I had an equally terrible accounting professor who I won't name. And I thought, Nope, nope, nope. Back to my love, my joy economics. So yeah, I went through economics. I focused a lot on international trade, financial stability, stuff like that. I did my honours degree there. And finally, yeah, I did my PhD specialising in financial stability in New Zealand. So exploring periods of crisis and policies that you could use to stabilise the economy again. So that was really difficult, really rewarding. I'm really, really glad I did it. I did all of that at the University of Auckland.

Paul Conway:

Was Prasanna there?

Caitlin Davies:

Prasanna, Yeah.

Georgina Hassell-Hopkinson:

Prasanna. Wow.

Caitlin Davies:

It's really cool seeing him on the committee and being like, that's my professor. He taught me everything I know. And now I get to see him again later in my career. So it's really nice. But yeah, I interned at a couple of places. I interned at the New Zealand Treasury. I actually wrote a paper for the review of the Reserve Bank Act in Macroprudential policy, which was fun. I entered as well at Kainga Ora, which is a social housing provider or New Zealand's largest social housing provider, thinking about the economic benefits of providing a social service. And then, yeah, I spent three and a half years at Te Mana Tātai Hokohoko, so the conduct regulator for financial markets in New Zealand. And then finally I thought, I miss macro, I miss monetary policy. I remember studying it really passionately throughout my PhD and in my undergraduate as well. And so when I heard that the reserve bank was opening up and expanding again, I was like, yes, please. I would love to be a part of that. Yeah.

Georgina Hassell-Hopkinson:

Well we're so happy to have you here. I'll quickly fire off some career questions. All right. How big are your teams?

Caitlin Davies:

I counted this morning, it's eight.

Georgina Hassell-Hopkinson:

Oh, nice. There’s many teams in there, isn't there?

Hamish Fitchett:

It's about 40 in economics, all that.

Georgina Hassell-Hopkinson:

Nice.

Hamish Fitchett:

And then because we're across four teams, they vary in size, but the modelling team, we're about seven or eight as well.

Caitlin Davies:

I think research is the biggest with 12.

Georgina Hassell-Hopkinson:

Nice.

Caitlin Davies:

The biggest in the economics department, I dunno about the rest.

Georgina Hassell-Hopkinson:

Of the, what's the most fun thing you get to do at this job?

Hamish Fitchett:

That's a great question. Monetary policy challenge.

Georgina Hassell-Hopkinson:

That’s the right answer guys. Guys, that is exactly the right answer. Thank you for that. Paul talked about with us earlier about how economics tends to be a male dominated industry. Caitlin, do you find that? How do you find it being the woman on our panel today would love to hear from you.

Caitlin Davies:

So I'm definitely not the only woman in the department. I think three women in my team of eight. So that's a pretty good ratio. It's obviously different across different parts of the bank. You might have certain parts of the bank that are female dominated, other parts, male dominated. Economics certainly leans a little bit more towards the male side, but we do have the women who are here are punching above their weight. So of the four managers across the teams, three of them are women. They're wonderful role models. So passionate, so good at their job, so competent. And it's really cool to see them and be like, yeah, that could be me. Maybe down the line. But it's really cool to see that there is strong female leadership in the bank. Yeah.

Georgina Hassell-Hopkinson:

Oh that's so encouraging to hear. And yeah, myself, I'm not in economics, but yeah, there definitely is. There's many women here, so you are not going to be alone. Don't worry about that at all. It's got a lot better

Paul Conway:

Here in the nineties it was a bit grim.

Georgina Hassell-Hopkinson:

Night and day.

Paul Conway:

Yeah, we were making progress.

Hamish Fitchett:

It's diversity of thought across a range of things. So for those of you looking at internships and starting to think about that further down the track, we are part of the Tupu Toa internship programme, so it's really cool to get diversity across gender, ethnicity as well. And one that the Reserve Bank is really, we are, like Paul was saying, we weren't the best in the past and we've admitted that and we can only work to improve that.

Paul Conway:

That's why it's important. This kind of thing, reaching into the schools, a lot of it is about the pipeline who's coming through and universities often say that they sort of get a certain mix of people already. So it's really important to encourage everybody. We want a population within here to be representative of the New Zealand population. That's what we're after.

Georgina Hassell-Hopkinson:

Question for all of you guys. I'd like to hear from all of you on this one. Do you have any advice for a young person who's keen to go into economics, what's your kind of departing message you want to get across to the students listening today?

Hamish Fitchett:

Who wants to start? I guess I do.

Georgina Hassell-Hopkinson:

You've introduced yourself. Go for it.

Hamish Fitchett:

My big thing is you'll be coming up on a period with lots of different options and decisions to be making. That's tricky. It's hard to navigate and know which option is going to be the best one. And the thing that drew me into economics, actually, it was an option that kept a lot of other options available to me. So you've got your maths, you've got your written stuff, you've got your complex ideas. And by trying to think about which option doesn't close down other pathways for you is a really helpful way to try and navigate some of these tricky decisions. And then once you've decided on something, persevere with it. Really try and push yourself and stick to it. And that's me. Nice.

Caitlin Davies:

Yeah. Cool. My piece of advice, I guess is to just be very curious and follow that curiosity. When I was learning about economics, I found particular things I was passionate about, financial stability or international markets and stuff like that. So I'd just go down those rabbit holes. I would open 50 Wikipedia tabs and that sort of stuff. Nice, nice. Just get really curious if there's a headline, this is, oh, unemployment is x percent inflation's just done this. I'd like follow that and just chase those rabbits. In doing so, you learn so many cool niche things and you can kind of piece them together. And that's something I really love about economics is that you get to be the detective that picks up all these little clues about what's going on. You put them together and say, and here's what's happening in the economy here. Here's the path forward that can help us get to a great future. So yeah, be curious, follow those rabbits. And I guess I love learning about economics, so I'd really love to impart that onto everyone else. Yeah.

Georgina Hassell-Hopkinson:

That's so gorgeous.

Hamish Fitchett:

Sheep, dogs and rabbits. I've got nowhere.

Georgina Hassell-Hopkinson:

I know guys, we've got to start thinking about our animal analogies.

Paul Conway:

My advice is very just quickly, it's more about leadership and one thing that I've really learned from being in a leadership position here is authenticity. Be yourself. It's more relaxing than trying to be somebody else. In my experiences, it can be highly effective. And the other thing related to that is believe in yourself. If you do want to have a big impact on your country, economics is really worth thinking because that's actually where you can end up having a big impact on all of New Zealand.

Georgina Hassell-Hopkinson:

Oh, thanks guys. It's so lovely. It's so lovely hearing you guys talk with such passion about economics. Very inspiring. We've still got lots of questions rolling in, but unfortunately we are just getting over time. Now what we'll do is we'll collect those questions and answer all of them and we'll email that out to all the students. So if you do want any of those, send us an email and we'll get back to you now before we go. That's a big reveal. Yeah, we do have the big reveal. Ah, so exciting. So yeah, before we go, we want to talk to you guys about this year's challenge question, which is up on the screen now. You guys will be in teams about three to five and you'll answer this in a short video answer in about seven to five minutes long. Submissions close on Wednesday, 18 September, 2024 at 5pm. Look, if you're a few minutes late, don't worry about it. It's not a big deal at all. If anything does pop up, please email me. I'm really happy to chat and work through a solution with you. Now, the prizes, oh actually no. I should say we really want to hear from you for this question, but we are not, there is no right answer to this. What we'll be judging you on is the economic theory that you bring to the table, not the number that you pick. Would you guys agree with that?

Paul Conway:

That's kind of what Caitlin was saying. Chase those rabbits, pull it all together and do a compelling argument.

Georgina Hassell-Hopkinson:

Yeah, we want to see your detective work pretty much great. Now the is always fun to talk about this one, so we'll fly the winners up or down wherever you are in the country to Wellington, to our RBNZ office here. You'll get to sit front row in one of our press conferences, have lunch with the governor and a few other special people. And there's lots of other fun things that we do on the day. It's always a really great one. And yeah, really cool getting to meet everyone here. And you do get a peek behind the curtains and a great flavour of what it's like working here this year. We are also offering winners the chance to interview for our summer internship programme. It's a great opportunity to get ahead and all our terms and conditions are on our website, so I really urge you guys to go have a look at those. If you do have any questions though, get in touch. More than happy to help answer those. Now I want to say a really big thank you and heartfelt thanks to our panel. Thanks so much for coming in, making the trip you guys and telling us all about your history and what you do in economics. It's been really inspiring and I'm sure I echo that from everyone watching at home as well.

Georgina Hassell-Hopkinson:

No, no, not at all. Also, big thanks for Paul. Third time back look. What's that track hook? No, what's it called? Hatrick. That's the one. Nice.

Georgina Hassell-Hopkinson:

Great. We look forward to listening to your submissions and watching those. But until then, ka kite, thank you guys.