Latest / Best of Business / Paul Bloxham: HSBC CEO on Australia's Reserve Bank keeping the OCR on hold at 4.35 percent

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Paul Bloxham: HSBC CEO on Australia's Reserve Bank keeping the OCR on hold at 4.35 percent · Best of Business

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  Speaker 2: Either The Aussie Reserve Bank has kept the official cash
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  Speaker 2: right over there on hold four point three percent. The
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  Speaker 2: banks is inflation in Australia is easy, but it is
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  Speaker 2: more slow than expected and on the path of interest rates.
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  Speaker 2: It's not ruling anything in or out. Paul Bloxham is
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  Speaker 2: Hgspecies chief economist at Paul Does that sound to you
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  Speaker 2: like they're even considering a hike or is that just
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  Speaker 2: jaw boning.
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  Speaker 3: Look, I think they're really quite solidly on hold at
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  Speaker 3: the moment. But I do think that there's a chance
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  Speaker 3: that in the coming months we could see the RBA
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  Speaker 3: decide to lift interest rates again. I certainly have been
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  Speaker 3: saying that I think there's a higher chance that the
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  Speaker 3: RBA is going to lift its policy rate in the
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  Speaker 3: second half of this year than them cutting it. I think,
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  Speaker 3: you know, they're highly unlikely to cut it. Their primary
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  Speaker 3: concern at the moment is still that inflation is too high,
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  Speaker 3: and as they said today, it's falling even more slowly,
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  Speaker 3: and so I still think there's a chance. I mean,
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  Speaker 3: my central case is they're going to be on hold,
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  Speaker 3: and there's a long hold to come from the RBA,
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  Speaker 3: But I think we can't rule out the possibility that
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  Speaker 3: they might hike sometime in the coming meetings.
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  Speaker 4: What do you think would tip them into a hike.
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  Speaker 3: It's primarily about inflation. It really is going to be
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  Speaker 3: about the inflation numbers. And I think the main thing
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  Speaker 3: to look out for will be that second quarter inflation
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  Speaker 3: print that we get in late July ahead of their
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  Speaker 3: August meeting. That's going to be the main thing to
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  Speaker 3: be watching out for, because if they were to get
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  Speaker 3: another upside surprise, keeping in mind, they had an upside
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  Speaker 3: surprise at the last for the last inflation print and
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  Speaker 3: they didn't respond because it was only a small upside surprise.
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  Speaker 3: But if you start accumulating them getting multiple ones, it
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  Speaker 3: might very well convince them that they just have a
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  Speaker 3: little bit more they have to do. The thing that
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  Speaker 3: might lean against that. Of course, you might not get
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  Speaker 3: the upside surprise. That's one possibility. And then the other
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  Speaker 3: possibility is that you start to see a bit more
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  Speaker 3: weakening in the jobs market and that we growth persists,
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  Speaker 3: because we've already got growth has slowed down the challenge
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  Speaker 3: we've got in Australia is growth has slowed, but inflation
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  Speaker 3: hasn't come down very fast, very similar to New Zealand
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  Speaker 3: in some ways. It's just that growth hasn't slowed as
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  Speaker 3: much here as it has in New Zealand.
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  Speaker 4: What is it that's causing your inflation to be so sticky.
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  Speaker 3: Well, I think it's primarily a similar story to New Zealand. Actually,
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  Speaker 3: it's that the supply side of our economy is still
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  Speaker 3: quite disrupted. And it may sound like a stretch, but
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  Speaker 3: you know, there's still quite a lot of the disruptive
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  Speaker 3: impacts of the pandemic related policies and the pandemic itself
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  Speaker 3: flowing through the economy. And you can see that in
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  Speaker 3: things like, well, the fact that the jobs market is
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  Speaker 3: still not quite matching as well as it should. It's
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  Speaker 3: still difficult to find skills, the fact that we've still
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  Speaker 3: got we've got a decline in housing construction going on
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  Speaker 3: right now, even though we've got very strong demands for housing,
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  Speaker 3: and a lot of that is that the housing market,
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  Speaker 3: the housing construction industry is quite gummed up, and I
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  Speaker 3: think a lot of that is sort of residual effects
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  Speaker 3: of the pandemic that's sharp. Rising materials cost forced a
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  Speaker 3: lot of builders to become insolvent, and that's coming up
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  Speaker 3: the system. So I still think that it's a lot
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  Speaker 3: to do with weak productivity and a week supply side
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  Speaker 3: of our economy, and quite a bit of that can
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  Speaker 3: be attributed to the effects of the pandemic and the
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  Speaker 3: pandemic policy response, and it's still flowing through and constraining
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  Speaker 3: the economy economy's ability to deliver, which is leaving you
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  Speaker 3: with this higher inflation despite the weakening demand.
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  Speaker 4: Paul, give me your take on what happens when we
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  Speaker 4: finally get a cut, whether it's a New Zealand or
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  Speaker 4: in Australia, because there is a school of thought that
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  Speaker 4: what will happen is it will be such a relief
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  Speaker 4: and such a poortent of good things to come that
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  Speaker 4: immediately people will become more liberal with their spending.
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  Speaker 3: Do you think I think that the cuts, when they
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  Speaker 3: do come, will be delivered at a time when the
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  Speaker 3: economy is quite weak, and so they will have an
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  Speaker 3: effect in terms of lifting things. Yeah. And I think
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  Speaker 3: the key question, I guess is going to be about,
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  Speaker 3: you know, when the cuts we do get cuts and
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  Speaker 3: Our central case for New Zealand is that you are
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  Speaker 3: likely to get cuts by the end of the year.
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  Speaker 3: That's what we're working with and we've got in mind
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  Speaker 3: that come next year you'll get a sequence of cuts
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  Speaker 3: in New Zealand. And so if you get a sequence
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  Speaker 3: of cuts from the RBNZ, I think you will see
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  Speaker 3: some tangible signs that it's going to be supportive of growth.
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  Speaker 3: And that's our central case, and that's primarily because the
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  Speaker 3: economy is so weak in New Zealand at the moment.
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  Speaker 3: In Australia's case, they've kind of chosen a different strategy.
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  Speaker 3: They didn't lift rates as much. We've got a very
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  Speaker 3: slow decline and inflation going on. We've had a slow
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  Speaker 3: down in growth, but we haven't they actually had a contraction.
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  Speaker 3: So when they do start easing, I think that's going
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  Speaker 3: to be a very They're not going to cut over
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  Speaker 3: very much to start with. I think it'll be that
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  Speaker 3: you're likely to see them on hold for an extended
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  Speaker 3: period and then a couple of cuts in the second
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  Speaker 3: half of next year. From the middle of next year
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  Speaker 3: is what we've got in mind. So different effects in
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  Speaker 3: different places.
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  Speaker 4: Hey, Paul, thank you.
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  Speaker 2: As was really appreciate your sharing some of the expertise
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  Speaker 2: with us as Paul Bloxham, hsp's chief economist.
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  Speaker 3: O