Latest / Best of Business / Paul Bloxham: HSBC chief economist on the Australian Reserve Bank keeping the OCR in place

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Paul Bloxham: HSBC chief economist on the Australian Reserve Bank keeping the OCR in place · Best of Business

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  Speaker 1: You're listening to a podcast from Newstalk Z'B. Follow this
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  Speaker 2: The RBA Board said inflation in underlying terms remains too high.
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  Speaker 2: The latest projection show that it will be sometime yet
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  Speaker 2: before inflation is sustainably in the target range. And Paul
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  Speaker 2: Bloxham's HSBC's chief economist with us to talk us through it. Hey,
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  Speaker 2: Paul good Now, they thought about hiking today. Why didn't
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  Speaker 2: they hike?
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  Speaker 3: Well, this is it. They did think about it, which
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  Speaker 3: is quite something when you think about it, because across
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  Speaker 3: the rest of the world. Of course, we're watching central
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  Speaker 3: banks cutting interest rates at the moment. But yes, as
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  Speaker 3: you say, they left their policy right on hold today
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  Speaker 3: and the governor noted that they did consider lifting them,
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  Speaker 3: but they decided to leave them on hold. Why did
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  Speaker 3: they leave them on hole? Because well, they got an
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  Speaker 3: inflation number last week that was just weak enough, just
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  Speaker 3: weak enough to keep them from lifting interest rates. It
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  Speaker 3: shows that underlying inflation the thing they focus on the most.
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  Speaker 3: The trim mean did edge slightly lower in the second
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  Speaker 3: quarter relative to the first quarter, but it's still running
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  Speaker 3: at three point nine percent, and the RBA targets two
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  Speaker 3: and a half, so there's still a long way above
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  Speaker 3: where they need to be. So it was just enough
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  Speaker 3: to get them to remain on hold and not lift
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  Speaker 3: interest rates, but certainly not enough for them to consider
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  Speaker 3: cutting interest rates yet. And that was the big thing
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  Speaker 3: that the governor went through at the press conference. She
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  Speaker 3: noted that, you know, a near term interest rate cut
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  Speaker 3: is just not on the cards at the moment.
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  Speaker 2: Yeah, I mean increasingly. I remember it was like February
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  Speaker 2: March this year, so five or six months ago, and
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  Speaker 2: you were saying absolutely no cuts this year, and increasingly
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  Speaker 2: you'll been proven rights. Right.
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  Speaker 3: Ah, I think that sounds about right, That sounds good. Yes. No,
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  Speaker 3: we've had a view since the big tail end of
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  Speaker 3: last year, since the end of twenty twenty three, that
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  Speaker 3: the RBA wasn't going to be cutting interest rates in
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  Speaker 3: twenty twenty four, that the pathway that they'd chosen, and
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  Speaker 3: this is really it quite explicitly chosen. They had lifted
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  Speaker 3: interest rates by less than everyone else, and we know
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  Speaker 3: that they lifted interest rates by four hundred and twenty
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  Speaker 3: five basis points, whereas, for example, the RB and Z
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  Speaker 3: went five twenty five and so did the US federal
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  Speaker 3: So the list of interest rates by left they started a
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  Speaker 3: bit later than everyone else. They didn't start till May
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  Speaker 3: of twenty twenty two, and so, and they did this
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  Speaker 3: on purpose. They did this to try to keep the
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  Speaker 3: economy as close to full employment as possible. They wanted
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  Speaker 3: to keep supporting it, didn't want growth to slow too much.
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  Speaker 3: They wanted to slow, but they didn't want to tip
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  Speaker 3: into a recession, accepting that in doing that it would
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  Speaker 3: take longer for inflation to come down. And so the
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  Speaker 3: explicit pathway they've chosen is one where they thought that
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  Speaker 3: inflation would take longer to come down, and they traded
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  Speaker 3: it off against staying close to full employment. So with
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  Speaker 3: all of that in mind, inflation has come down more slowly,
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  Speaker 3: it turns out, And so the IRBA isn't able to
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  Speaker 3: cut yet, and so rate cuts we don't think are
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  Speaker 3: going to happen until next year. That's that's our that's
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  Speaker 3: been our central case.
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  Speaker 2: So over in New Zealand, there is increasing pressure from
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  Speaker 2: a couple of banks on our Reserve Bank to actually
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  Speaker 2: cut next week because what their argument is is that
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  Speaker 2: it takes about eighteen months for it to flow through
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  Speaker 2: to the economy may as well get started. Now, what
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  Speaker 2: do you think.
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  Speaker 3: I think it's very very much alive what happens with
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  Speaker 3: the rbn Z. I think the RBNZ took a very
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  Speaker 3: different approach to what I've just described that the RBA did.
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  Speaker 3: The rb ens that lifted interest rates earlier, they lifted
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  Speaker 3: them by more. New Zealand economy has tipped into a downturn.
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  Speaker 3: You've had two in the past six quarters. You've had
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  Speaker 3: four quarters where GDP was actually falling. The labor markets
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  Speaker 3: starting to loosen up as well. I think the case
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  Speaker 3: is getting stronger for the RB and Z to be
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  Speaker 3: able to cut interest rates fairly soon. Actually, the critical
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  Speaker 3: thing that's really going to be important here, I think
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  Speaker 3: is tomorrow morning we get some employment numbers, and those
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  Speaker 3: employment numbers will be one of the key factors. I
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  Speaker 3: think that goes into working out whether actually the rbn
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  Speaker 3: Z is cutting rates a little later this year or
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  Speaker 3: maybe maybe even as soon as tomorrow. That will be
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  Speaker 3: critical for the story. So I think we're getting very
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  Speaker 3: close to an RB and Z cut coming through fairly soon. Yay.
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  Speaker 2: How good is that? Paul, Thank you very much, really
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  Speaker 2: appreciate it talks to you in a couple of weeks.
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  Speaker 2: It's Paul Bloxham, HSBC's chief economist.
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