Latest / Best of Business / Paul Bloxham: HSBC chief economist on whether the OCR will be cut tomorrow

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Paul Bloxham: HSBC chief economist on whether the OCR will be cut tomorrow · 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 1: this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: Together do for se l, let's talk about the OCA.
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  Speaker 2: The Reserve Bank is widely expected to cut it tomorrow.
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  Speaker 2: It sits at three point twenty five percent. Major banks
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  Speaker 2: have already been dropping their mortgage interest rates in anticipation.
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  Speaker 2: Hbbc's chief economist Paul Bloxham is with us from Sydney. Hay, Paul, so,
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  Speaker 2: what do you reckon? Do you reckon? They'll have consensus
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  Speaker 2: around the table on this.
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  Speaker 3: I think that it's fairly clear that the case should
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  Speaker 3: be made that, you know, cutting by twenty five basis
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  Speaker 3: points makes sense. I think, you know, the economy is
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  Speaker 3: still quite sluggish, and the data that the labor markets
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  Speaker 3: particularly soggy at the moment, and so the case for
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  Speaker 3: supporting growth is probably stronger than the case for being
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  Speaker 3: worried that inflation has picked up a bit. And it
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  Speaker 3: has picked up a bit, so I think I think
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  Speaker 3: they should get over the line fairly comfortably for delivering
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  Speaker 3: a cup tomorrow.
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  Speaker 2: And what do you reckon? The do the cut and
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  Speaker 2: then do they indicate more easing after that?
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  Speaker 3: I think that they're likely to be a bit circumspected
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  Speaker 3: about what's coming next. Actually, I think although as I say,
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  Speaker 3: the economy is still looking a bit sluggish and still
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  Speaker 3: the labor market SOGGI inflation having picked up a bit
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  Speaker 3: is something that will be I think in their focus
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  Speaker 3: they'll know about that, and then I think the other
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  Speaker 3: thing to watch out for is we've had some wobbles
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  Speaker 3: in the data over the past couple of months, obviously
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  Speaker 3: the PMIS and arrange of the sort of timely indicators,
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  Speaker 3: but they have come back a bit in the last print,
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  Speaker 3: and I do think that these wobbles are going to
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  Speaker 3: prove to be just temporary. I think the two big
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  Speaker 3: forces at work that are going to lift growth in
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  Speaker 3: New Zealand are going to be interest rates have come
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  Speaker 3: down a long way already and I think they'll go
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  Speaker 3: down another twenty five basis points. And dairy prices are
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  Speaker 3: at high levels and that's boosting the agricultural sector. So
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  Speaker 3: I think they should be quite circumspect about what they
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  Speaker 3: do next, even though I'm fairly confident they're going to
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  Speaker 3: deliver a cut tomorrow.
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  Speaker 2: Do you think that given that, I mean, you're a
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  Speaker 2: bit more glass half full than glass half MD, right,
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  Speaker 2: and you think we're probably actually already on our way up.
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  Speaker 2: Do we need to change our attitude in this country
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  Speaker 2: and stop being so moody about it?
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  Speaker 1: Oh?
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  Speaker 3: Look, I think that when you look at the economy
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  Speaker 3: from a distance, as I do, I watch New Zealand
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  Speaker 3: very carefully, but I watch it from Australia, I think
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  Speaker 3: I can see the big picture forces at work that
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  Speaker 3: are supporting the economy, and I think it does feel
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  Speaker 3: on the ground. I was in New Zealand a few
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  Speaker 3: weeks back, it does feel still a bit a bit sluggish.
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  Speaker 3: But the thing is we're we're not trying to work
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  Speaker 3: out where the economy is right now. We're trying to
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  Speaker 3: work out where the economy is going to be in
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  Speaker 3: six or twelve months time. We're trying to forecast. And
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  Speaker 3: so I think, don't get too caught up in the
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  Speaker 3: things that are the fact that things are a bit
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  Speaker 3: sluggish at the moment. The forces at work are in
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  Speaker 3: play for getting growth to lift over the next six
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  Speaker 3: to twelve months, and that's how we've framed our view.
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  Speaker 2: Am I right in thinking that Michelle Bullock was being
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  Speaker 2: a little bit cagy about where she thinks neutral is.
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  Speaker 3: I don't think the RBA wants to be very specific
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  Speaker 3: about where they think neutral is. In fact, they've been
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  Speaker 3: quite clear in their published work in their statement that
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  Speaker 3: there are lots of models and those models all show
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  Speaker 3: quite you know, are varied estimates as to where neutral is,
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  Speaker 3: and so you know, they look at them all and
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  Speaker 3: they take some information from them. But I don't think
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  Speaker 3: they're being guided in terms of what they do month
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  Speaker 3: to month with their or you know, meeting to meeting
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  Speaker 3: with their policy setting at the RBA by where they
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  Speaker 3: are relative to neutral. I think it's just one of
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  Speaker 3: the many things that goes into the mix about the discussion,
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  Speaker 3: but it's not actually the thing that's driving the decision.
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  Speaker 3: So I think, you know, they've been fairly clear that
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  Speaker 3: they don't they think that it's you know, it's there's
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  Speaker 3: a large range of estimates where neutral is.
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  Speaker 2: So why not actually say where they think neutral ism?
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  Speaker 3: Is?
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  Speaker 2: It not helpful to people to have an idea of
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  Speaker 2: what they think?
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  Speaker 3: Well, but I think this is the point that they are.
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  Speaker 3: I don't think they set policy in that way. I
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  Speaker 3: think the way they go about setting policy is primarily
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  Speaker 3: by doing it by feel is the way I describe
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  Speaker 3: they're data dependent. They're watching the data as it comes out.
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  Speaker 3: If the data are a bit weak or a bit
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  Speaker 3: stronger relative to their forecast than that sort of conditions,
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  Speaker 3: how they're going to respond. And it's about doing it
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  Speaker 3: that way, rather than having a really strong view about
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  Speaker 3: where they think neutral is and then setting it based
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  Speaker 3: on a model framework. Because the risk of doing that,
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  Speaker 3: of course, is you could be wrong. You might not
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  Speaker 3: get your neutral estimate particularly right. And I guess the
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  Speaker 3: RBA is being quite clear about the fact that actually
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  Speaker 3: there's a lot of variability, and the models all come
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  Speaker 3: up with sort of you know, model estimates that can
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  Speaker 3: be quite variable. So better to do it by feel
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  Speaker 3: better to go about setting monetary policy based on the
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  Speaker 3: data as we see it, rather than putting a lot
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  Speaker 3: of weight on a very uncertain forecast.
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  Speaker 2: What do you think now that we've had the teriff
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  Speaker 2: stuff largely sorted out and it's settled down a wibit,
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  Speaker 2: where do you see the international economic situation sitting I think.
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  Speaker 3: We still get to see the full effect of the
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  Speaker 3: tariff uncertainty that came through. I think a lot of
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  Speaker 3: what's actually held up the economic indicators over the past
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  Speaker 3: six months or so has been a lot of front loading.
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  Speaker 3: You know, there's been a lot of pull forward of
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  Speaker 3: activity ahead of the rival of those tariffs, a lot
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  Speaker 3: of imports into the US, a lot of exports out
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  Speaker 3: of other economies into the US. And I think we're
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  Speaker 3: yet to see that front loading roll off, and I
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  Speaker 3: think as it does roll off, it's actually going to
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  Speaker 3: weaken the global economic cycle, both the US and the
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  Speaker 3: one in Asia. So I think I think we still
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  Speaker 3: haven't seen the full effect of that, the uncertainty that
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  Speaker 3: was created by all of those trade developments, and also
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  Speaker 3: the impact it's had in terms of driving front loading.
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  Speaker 3: So we've still got in mind that global growth slows
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  Speaker 3: in the coming months and into the early part of
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  Speaker 3: next year.
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  Speaker 2: Good stuff. Hey, it's always good to talk to you, Paul.
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  Speaker 2: Thanks so much, Paul Bloxham, HSPECIES Chief Economists.
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