Latest / Best of Business / Paul Bloxham: HSBC chief economist on Australia slashing their OCR by 25 basis points

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Paul Bloxham: HSBC chief economist on Australia slashing their OCR by 25 basis points · Best of Business

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  Speaker 1: You're listening to a podcast from News Talks be follow
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  Speaker 2: It's some interest rate relief for Ossie's. Finally, the RBA
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  Speaker 2: today cutting the official cash rate for the first time
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  Speaker 2: since twenty twenty. Governor Michelle Bullock, explaining the quarter percent
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  Speaker 2: cut to four point one percent.
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  Speaker 3: It's clear that higher interest rates have been working as anticipated,
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  Speaker 3: restricting economic activity and putting downward pressure on inflation. The
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  Speaker 3: Board judges it's time to reduce a little bit of
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  Speaker 3: that restrictiveness. But we cannot declare victory on inflation just yet.
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  Speaker 3: It is not good enough for inflation to be back
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  Speaker 3: in the target range temporarily. The Board needs to be
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  Speaker 3: confident that is returning to the target range sustainably.
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  Speaker 2: Paul Blocks from HSBC, good evening. Hey, good to have
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  Speaker 2: you back. Congratulations you pick that.
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  Speaker 4: Right, we did, We got that one right, So I'm
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  Speaker 4: definitely happy about that. You know, the cut was part
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  Speaker 4: of it, but the real interesting part was just how
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  Speaker 4: cautious they were, how much they're really giving guidance that
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  Speaker 4: this is one move, but actually they're going to need
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  Speaker 4: more evidence of inflation continuing to fall before they would
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  Speaker 4: consider cutting again. So we don't think that we're thinking
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  Speaker 4: that they're going to cut anytime soon again, that it's
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  Speaker 4: going to be quite a few months before we get
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  Speaker 4: another cut from the RBA.
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  Speaker 2: Too really to celebrate. I mean, if you look at
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  Speaker 2: we were speaking to Mariols there, Assie correspondent earlier, he said,
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  Speaker 2: it's about one hundred dollars is it one hundred dollars
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  Speaker 2: a fortnight, if you know, on your average mortgage, And
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  Speaker 2: when the rates went up it was, you know, fifteen
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  Speaker 2: hundred dollars weak to your wallet. So it's come back
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  Speaker 2: a little bit, but it's not you know, it's not
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  Speaker 2: game changing.
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  Speaker 4: Well that's right. So the RBA lifted its cash right
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  Speaker 4: by four hundred and twenty five basis points. They stopped
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  Speaker 4: doing that in November of twenty twenty three. That was
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  Speaker 4: the last hike that was that arrived and today they
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  Speaker 4: took back twenty five basis points of that four hundred
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  Speaker 4: and twenty five. So, you know, it's as the governor
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  Speaker 4: said in the recording you just played, you know, monetary
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  Speaker 4: policy is still restrictive. It's just a little bit less restrictive.
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  Speaker 4: And they feel they can make this move because inflation
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  Speaker 4: is coming down, but it's still not back where they
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  Speaker 4: need to be in terms of inflation. It's still not
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  Speaker 4: quite at the target. And the other thing, of course
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  Speaker 4: for Australia is not only is the you know, the
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  Speaker 4: inflation coming down, but we're doing this within a labor
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  Speaker 4: market that's still very strong. The unemployment rate is still
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  Speaker 4: very low. It's coming down a little bit in the
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  Speaker 4: last couple of months, in the last few months as well,
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  Speaker 4: and so we're sort of close to full employment. If
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  Speaker 4: you've got a fully employed economy and inflation's coming down gradually,
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  Speaker 4: the RBA hasn't got a lot of scope to be
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  Speaker 4: able to lower interest rates quickly. Of course, that's in
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  Speaker 4: a very big contrast to what's going on in New Zealand,
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  Speaker 4: where the unemployment rates risen quite a lot, inflation's come
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  Speaker 4: right back to target and the RB and Z has
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  Speaker 4: already delivered a lot of easing and we think tomorrow
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  Speaker 4: they'll probably deliver another fifty basis points cut as well.
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  Speaker 2: Yeah, and the question is what do they do after that.
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  Speaker 2: So just coming back to the Governor Michelle Bollock for
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  Speaker 2: a second, is she made a new comment on the
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  Speaker 2: market pricing in future rate cuts.
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  Speaker 4: Well, absolutely, actually today it was very explicit. Not only
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  Speaker 4: did she say it, but if you look at the
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  Speaker 4: RBA's own forecasts, they are only forecasting that their main measure,
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  Speaker 4: the one they focus on, it gets back to two
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  Speaker 4: point seven percent and then track cybway so it doesn't
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  Speaker 4: actually get to two and a half percent in their
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  Speaker 4: own forecasts. And the reason why it doesn't get all
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  Speaker 4: the way back down is because they're working assumption is
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  Speaker 4: market pricing, and so market pricing is assuming another eighty
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  Speaker 4: four or exsuming eighty five basis points worth of cuts altogether.
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  Speaker 4: And the governor explicitly said we think at this point
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  Speaker 4: in time that if we were to deliver that many cuts,
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  Speaker 4: inflation won't actually get back to two and a half.
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  Speaker 4: So they were very explicit about saying the market is
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  Speaker 4: pricing in too much easying at the moment.
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  Speaker 2: Interesting, what do you reckon about where we end up
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  Speaker 2: by years in here in New Zealand pool Because initially
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  Speaker 2: the Reserve Bank here was talking about, you know, three
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  Speaker 2: and a half odd percent, but we know that neutral
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  Speaker 2: is closer to three percent, and they were talking about
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  Speaker 2: three and a half by the end of the year.
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  Speaker 2: Do you think they're going to have to revise that.
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  Speaker 4: So we think you're going to get a fifty basis
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  Speaker 4: point cut tomorrow from the RBNZ, and then we think
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  Speaker 4: that we're going to get three more RBNZ twenty five
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  Speaker 4: basis point moves over the subsequent meetings, and that would
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  Speaker 4: get you down to three percent on the cash rate.
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  Speaker 4: That's our central case, our working assumption for what is
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  Speaker 4: going to be delivered in New Zealand. So this is
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  Speaker 4: the last big cut and then the ones that follow
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  Speaker 4: will be smaller. And of course the question is going
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  Speaker 4: to be do they actually get to deliver all of
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  Speaker 4: those cuts, because the other thing is, although New Zealand
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  Speaker 4: has had a big downturn last year, the starting to
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  Speaker 4: these signs that things are picking up. The PMI is improving,
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  Speaker 4: dairy prices are high, there's been a turnaround in some
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  Speaker 4: of the sentiment indicators as well, and so you know,
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  Speaker 4: how much more does the RBNZ need to deliver it? Well,
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  Speaker 4: we think fifty tomorrow and then three more twenty fives.
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  Speaker 4: But the question is going to be do they need
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  Speaker 4: to deliver all of that to get the economy to
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  Speaker 4: turn around, given it's already starting to turn around.
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