Don Brash concerned for the economy after official cash rate cut

Don Brash has two concerns after the Reserve Bank opted to cut the official cash rate (OCR) on Wednesday.

The rate was cut to 1.5 percent on Wednesday, its lowest ever rate and the first time it has been cut since 2016.

Dr Brash, who holds a PHD in economics and used to be Reserve Bank Governor, said the cut could spell trouble for the housing market.

"The Reserve Bank itself suggests this will reignite housing inflation to about 5 percent per annum," he told The AM Show.

"That sounds reasonable for what we've had, but the Government talks about making housing more affordable. What the Reserve Bank is saying is saying that houses will continue to rise faster than incomes."

His second concern is about what the Reserve Bank could do if a recession occurs, with the rate at the lowest it's ever been there isn't much room to go any lower.

"Our rates are now very low as you point out, what happens if we actually strike a real recession? There's not much room to cut them. We can go to zero, but not much below."

He said the Reserve Bank is right to be worried about the economy too, as domestic growth has softened, while international markets are getting tense.

"I think the risk, which the Reserve Bank rightly noted, was the risk of global tensions including between the United States and China.

"If the Chinese economy were to be adversely affected by that trade war, clearly that would impact us badly directly, but also indirectly because of Australia too. China is its most important market and Australia is our second most important trading partner.

"So the international environment is uncertain and I can understand the Reserve Bank being nervous about that."